CONTRACT A

Laws2111

2015

Associate Professor Warren Swain

ABBREVIATIONS

Books
Carter = JW Carter, Contract Law In Australia 6th edn (LexisNexis, 2013). NB Carter is the course textbook.
Paterson = Jennie Patterson, Andrew Roberson and Arlen Duke, Principles of Contract Law 4th edn (Lawbook
Co, 2012)
Cheshire and Fifoot = N Seddon, R Bigwood, M Ellinghaus, Cheshire and Fifoot Law of Contract 10th edn
(Lexis Nexis, 2012)
ER = English Reports

LECTURE 1:

CONTRACT LAW: AN INTRODUCTION.

WHAT IS A CONTRACT?

There is, as yet, no statutory definition of a contract in Australian law. Several definitions have been attempted.
All in their different ways capture the flavour of contract law and emphasise some of its key components.

Carter p. 3, A contract is a legally binding promise or agreement. The person (or persons) who makes a promise
is termed the promisor. The person (or persons) to whom the promise is made is termed the promisee.

Paterson, p. 3 A contract is commonly defined as an agreement or set of promises that the law will enforce

American Law Institute, Restatement (2d) of Contracts: A contract is a promise or set of promises for the
breach of which the law gives a remedy, or the performance of which the law in some way recognises a duty.

All of these definitions capture the idea that contracts are the product of the consent of the parties. In this respect
contracts are not like torts where the law imposes obligations because of a wrong committed. Contracts are of
course not unique in arising from consent. The same is true with other obligations such as trusts.

Contracts are like stories with a beginning a middle and an end. In Contract A we are concerned with the
beginning and the middle. At the beginning of the story are the rules about when a contract is validly formed
and the requirements for a valid contract for example the doctrine of consideration. The middle, of the story, is
in terms of litigation perhaps the most important. That concerns the question of the terms of a contract and what
they mean. The end is covered by Contract B and is concerned with the end or what happens when something
goes wrong either because there was something wrongful about the circumstances in which the contract was

entered into (for example it was the product of duress or undue influence) or because one of the parties has
failed to perform and the contract is therefore breached.

WHY DOES A CONTRACT CREATE A LEGALLY ENFORCEABLE OBLIGATION?

There are numerous theories about why a contract is a legally enforceable obligation. The detail is beyond the
scope of this course. Agreement and promise feature in two of the most influential.

The so called will theory of contract was popular in the nineteenth century when many of the features of modern
contract law were put in place. This is usually known as the Classical model of contract. The will theory is
based on the idea that contracts are formed by a meeting of wills and that this is what makes contracts binding.
This requirement is emphasised in the need for an agreement. This model of contract stressed the autonomy of
the parties. They were free to agree what they liked provided it was not illegal.

The promissory theory of contract is advocated by writers like Charles Fried in his book, Contract As Promise
(Harvard University Press, 1981). Fried argues at p. 17, that breaking a promise amounts to a wrong:

There exists a convention that defines the practice of promising and its entailments. This convention
provides a way that a person may create expectations in others. By virtue of the basic Kantian
principles of trust and respect, it is wrong to invoke that convention in order to make a promise, and
then to break it.

For a summary of some of the theories of contract see Paterson, Ch 1.

CONTRACT AND CONTRACTS

Legal writers of the nineteenth century tried to present the law of contract as though it was a unified body of law
meaning that the same principles applied irrespective of the subject matter or type of contract. Modern lawyers
do not entirely see contracts in this way. For some types of contracts statute law applies. A good example is the

Sale of Goods Act 1896 (Qld) which was based on English legislation. Some types of transactions such as those
between a company and a consumer are controlled by statute in order to protect consumers. Australian
Consumer Law 2010 will be discussed in a later week. It has become increasingly fashionable to argue that
when deciding contract cases that judges should take into account the broader business and economic
environment. For a strong, and sensible, argument against this approach see: John Gava, How Should Judges
Decide Commercial Contract Cases? (2013) 30 Journal of Contract Law 133.

The High Court treat the common law of contract as the same across Australia. But there are significant
statutory differences between states. The common law remains deeply rooted in English law. Although since the
1980s the High Court has tried to take the law of contract in new directions. Some of the English cases law
whilst no longer binding on the High Court still remains influential. There are some who believe that contract
law should be codified for an argument against this view see: Warren Swain, Contract Codification in Australia:
Is it Necessary, Desirable and Possible? (2014) 36 Sydney Law Review 131-142

SOME SIMPLE CONTRACTS AND SOME IMPORTANT DISTINCTIONS

Anna promises to sell her car to Bill. In return Bill promises to pay Anna 10,000 pounds. This is known as a
BI-LATERAL CONTRACT.

The contract is bi-lateral because each party is making a promise and each party is bound to perform. In this
example, which is typical of most contracts, all three of the main elements of a contract are present. There is an
agreement between Anna and Bill, promises by both Anna and Bill, and an obligation enforceable in law.

Two promises need not be necessary to create a binding contract. Suppose that Anna promises to pay a reward
of 1,000 to anyone who finds her lost cat Tiddles. Bill finds the cat and returns it to Anna. This creates a
UNILATERAL CONTRACT. A unilateral contract is so called because only one party is making a promise and
only one party (Anna in the example) is bound to perform by paying the reward.

The distinction between a bilateral and unilateral contract is based on whether one or both parties are bound by
the contract.

Another basic distinction needs to be made between simple contracts and contracts were a DEED is used. A
simple contract means a contract without a deed. In order to be binding a simple contract requires
CONSIDERATION. Consideration will be discussed in detail in a later lecture. It is based on the apparently
simple idea that contract involves an exchange. Where a deed is used consideration is not required.

We are largely concerned with simple contracts. A simple contract is formed by an agreement supported by
CONSIDERATION. A simple contract can be concluded orally. Certain types of simple contract must be made
in writing.

You should be careful to distinguish a contract by deed and a simple contract in writing. The former type
of contract is binding because of the deed. The later type of contract is binding because of consideration.
Where writing is required it is an additional requirement without which the contract is invalid.

Most contracts can be in any form they do not need to be in writing and signed. Some contracts have
traditionally required to be in writing and signed. The English Statute of Frauds 1677 has to some extent being
enacted in Australia. Typical examples requiring writing are contracts for the sale of disposition of an interest in
land (including leases and mortgages), and contracts of guarantee. This will be considered in detail on the
Property Law course. Where writing is required and not used the contract is NOT void but only unenforceable.
Equity can intervene to give relief where there has been part performance.

Property Law Act 1974 (Qld) ss. 45, 56, 59

45 Formalities of deeds executed by individuals

(1) Where an individual executes a deed, the individual shall either sign or place the individual's mark upon the
same and sealing alone shall not be sufficient.
(2) An instrument expressed
(a) to be an indenture or a deed; or
(b) to be sealed;
shall, if it is signed and attested by at least 1 witness not being a party to the instrument, be deemed to be sealed
and, subject to section 47, to have been duly executed.
(3) No particular form of words shall be requisite for the attestation.
(4) A deed executed and attested under this section may in any proceedings be proved in the manner in which it
might be proved if no attesting witness were alive.
(5) Nothing in this section shall affect
(a) the execution of deeds by corporations; or
(b) how instruments are validly executed under the Land Title Act 1994; or
(c) any deed executed before the commencement of this Act.

56 Guarantees to be in writing
(1) No action may be brought upon any promise to guarantee any liability of another unless the promise upon
which such action is brought, or some memorandum or note of the promise, is in writing, and signed by the
party to be charged, or by some other person by the party lawfully authorised.
(2) A promise, or memorandum or note of a promise, in writing shall not be treated as insufficient for the
purpose of this section merely because the consideration for such promise does not appear in writing or by
necessary inference from a written document.

59 Contracts for sale etc. of land to be in writing

No action may be brought upon any contract for the sale or other disposition of land or any interest in land
unless the contract upon which such action is brought, or some memorandum or note of the contract, is in
writing, and signed by the party to be charged, or by some person by the party lawfully authorised.

Domestic Building Contracts Act 2000 (Qld) ss. 26, 30

26 Contracts must be in writing

A building contractor who enters into a regulated contract must ensure the contract
(a) is in written form when it is entered into; or
(b) is put into written form
(i) as soon as practicable (but within 5 business days) after it is entered into; and
(ii) before a start is made in carrying out the subject work.
Maximum penalty80 penalty units.

30 Contracts must be signed

A regulated contract has effect only if it is signed by the building contractor and building owner (or their
authorised agents).

Property Occupations Act 2014 (Qld) which replaces Property Agents and Motor Dealers Act (PAMDA) 2000
(Qld).
This legislation imposes writing requirements on a contract for the sale of residential property and ensures that a
particular form of words must be used in that contract see s 165.

Electronic Transactions (Queensland) Act 2000 (Qld) ss 8, 14

S 8 Validity of electronic transactions

(1) A transaction is not invalid under a State law merely because it took place wholly or partly by 1 or more
electronic communications.
(2) However, the general rule in subsection (1) does not apply for the validity of a transaction to the extent to
which another, more specific, provision of this chapter deals with its validity.

S 14 Requirement for signature

(1) If, under a State law, a person's signature is required, the requirement is taken to have been met for an
electronic communication if
(a) a method is used to identify the person and to indicate the person's intention in relation to the information
communicated; and
(b) the method used was either
(i) as reliable as appropriate for the purposes for which the electronic communication was generated or
communicated, having regard to all the circumstances, including any relevant agreement; or
(ii) proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further
evidence; and
(c) the person to whom the signature is required to be given consents to the requirement being met by using the
method mentioned in paragraph (a).
(2) The reference in subsection (1) to a law that requires a signature includes a reference to a law that provides
consequences for the absence of a signature.

AGREEMENT

In order to constitute a contract there must be an agreement. The existence of an agreement is determined by an
objective test. An objective test is one that applies the standards of a reasonable person rather than the parties
themselves. This means that the parties can be said to have agreed even if subjectively it cannot be said that they
both intended to contract on those terms.

Smith v. Hughes (1871) LR 6 QB 597, 607, Blackburn J.:

If, whatever a mans real intention may be, he so conducts himself that a reasonable man would believe
that he was assenting to the terms proposed by the other party, and that other party upon that belief
enters into a contract with him, the man thus conducting himself would be equally bound as if he had
intended to agree to the other partys terms.

Taylor v. Johnson (1983) 151 CLR 422, 428 Mason ACJ, Murphy and Deane JJ:
The law is concerned, not with the real intentions of the parties, but the outward manifestations of those
intentions.

Where the dispute is not about the EXISTENCE of the contract but a TERM within the contract the same
approach is used. For example Anna offers to sell Bill a book for 10 and Bill accepts his offer. A cannot argue
that he only intended to sell the book for 20 if a reasonable person would believe that the offer was for 10 and
Bill did so believe. CONTRACTUAL TERMS will be covered later in the semester.

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CAPACITY TO CONTRACT

The law assumes that anyone can freely contract. But there are rules to protect the vulnerable. A party may lack
capacity because they are a child. In Queensland the age of majority is 18 see Law Reform Act 1995 (Qld) s 17.
Minors contracts fall into three categories in Queensland:
1.
2.
3.

Contracts for necessaries which are binding on the minor see Sale of Goods Act 1896 (Qld) s 5.
Contracts which are binding on the minor unless repudiated
Contracts which are NOT binding on the minor unless ratified

Metal Incapacity:
Gibbons v. Wright (1954) 91 CLR 423.

READING
Carter, Ch 1

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Lecture 2

THE NATURE OF AGREEMENT: OFFER AND ACCEPTANCE

The doctrine of offer and acceptance is the name given to the legal rules for determining whether the parties
have entered into a contract. Assuming that the other conditions for a valid contract are present a contract is
formed when an offer, by the OFFEROR to contract, is accepted by an OFFEREE. The law distinguishes
between statements which are intended to be offers which upon acceptance will be binding contractually and
other statements made in the course of negotiations which do not have the status of an offer. These statements
are known as invitations to treat and are not capable of acceptance.

A. THE APPLICATION OF THE DOCTRINE

The traditional approach of looking for an offer and an acceptance is open to the criticism that it is unduly
narrow and mechanical. Instead it can be argued that rather than looking for an offer an acceptance a wider
inquiry is called for.

Gibson v. Manchester City Council [1978] 1 WLR 520, 523 Lord Denning MR:
To my mind it is a mistake to think that all contracts can be analysed into the form of offer and
acceptance. I know in some of the text books it has been the custom to do so: but, as I understand the
law, there is no need to look for a strict offer and acceptance. You should look at the correspondence as
a whole and at the conduct of the parties and see therefrom whether the parties have come to an
agreement on everything that was material.

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In overruling the Court of Appeal, the House of Lords rejected Lord Dennings approach.
Gibson v. Manchester City Council [1979] 1 WLR 294, 297, Lord Diplock:
My Lords, there may be certain types of contract, though I think they are exceptional, which do not fit
easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract
alleged to have been made by an exchange of correspondence between the parties in which the
successive communications other than the first are in reply to one another, is not one of these. I can see
no reason in the instant case for departing from the conventional approach of looking at the handful of
documents relied upon as constituting the contract sued upon and seeing whether upon their true
construction there is to be found in them a contractual offer by the corporation to sell the house to Mr.
Gibson and an acceptance of that offer by Mr. Gibson.

The House of Lords conceded that the traditional approach utilising offer and acceptance could be departed
from in exceptional cases.

Analysing offer and acceptance is usually straight forward. It is not always so.

Brambles Holdings Ltd v. Bathurst City Council [2001] NSWCA 61

B. HAS AN OFFER BEEN MADE?

Whether or not an offer has been made is ultimately a question of intention determined according to the
objective test.

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(a) What is an offer?

An offer is an expression of willingness to contract on specified terms, made with the intention that it is to
become binding as soon as it is accepted by the person to whom it is addressed.

(b) Distinguish an offer from an invitation to treat

Offers must be distinguished from invitations to treat. An invitation to treat refers to preliminary
negotiations or expressions of interest.

The distinction between an offer and an invitation to treat is a question of intention: did the person making
the statement intend, objectively assessed, to make an offer?

Although the distinction between an offer and an invitation to treat depends on intention there are some
prima facie rules of law which are used to determine whether or not there is an offer. Because they are only
prima facie rules they can be displaced by evidence of contrary intention.

(i)

Advertisements

Advertisements of bilateral contracts are not usually held to be offers because they often lead
to further bargaining: see Partridge v. Crittenden [1968] 2 All ER 421. A rationale for this can
be found in Grainger v. Gough [1896] AC 325 where Lord Herschell stated that if an
advertisement of goods were an offer, a trader might be liable to supply more stock than was
available. The position may be otherwise if the advertisement is limited to a certain number
of goods. For example an advertisement might state Sale 10 televisions for sale at $100

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each first come, first served see Lefkowitz v. Great Minneapolis Surplus Store (1957) 86
NW 2d 689

Advertisements of unilateral contracts are more likely to be treated as offers:

Gibbons v. Proctor (1891) 64 LT 594
Carlill v. Carbolic Smoke Ball Co [1893] 1 QB 256

(ii)

Display of Goods

A display of goods is generally an invitation to treat: see Fisher v. Bell [1961] 1 QB 394 and
Pharmaceutical Society of GB v. Boots [1953] 1 QB 401 although again there is no absolute
rule to this effect: see Chapelton v. Barry UDC [1940] 1 KB 532 where a display of deck
chairs for hire constituted an offer.

(iii)

Websites

It may be that websites containing advertisements will be treated in the same way as
advertisements generally, that websites displaying goods will be treated in the same way as
displays of goods generally etc.

(iv)

Requests for Tenders/Bids

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A request for bids or tenders will generally be an invitation to treat, with the bids or tenders
constituting offers: see Spencer v. Harding (1870) LR 5 CP 561. The requestor is then
generally free to accept or reject the individual bid(s) or tender(s).

Obligation to consider conforming tenders/bids?

Strictly applying Spencer v. Harding (1870) LR 5 CP 561 it would seem that the requestor is
under no obligation to consider bids or tenders as there is no contract until a bid or tender is
accepted. This was a cause of concern to Bingham LJ in Blackpool & Fylde Aero Club v.
Blackpool BC [1990] 1 WLR 1195.
In that case the Court of Appeal decided that in certain circumstances a requestor would be
under a duty to consider conforming tenders bids. The mechanism used to achieve this result
was an implied unilateral contract. A request for tenders is still, generally, an invitation to
treat but it is coupled with an implied offer to the effect that if you submit a conforming
tender/bid it will be considered. When a tender/bid is submitted two things occur. First an
offer is made in respect of the work etc and secondly the collateral offer (the promise merely
to consider) is accepted.

Hughes Aircraft Systems International v. Airservices Australia (1997) 146 ALR 1.

What if there is an undertaking to accept highest/lowest bid?

There may also be an obligation to accept the highest/lowest bid/tender although the
mechanics of such an obligation is not entirely clear: see Harvela v. Royal Trust Co. of
Canada [1986] AC 207.

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(v)

Auctions

A request for bids at an action is generally an invitation to treat: see Harris v. Nickerson
(1873) LR 8 QB 286. The bids are offers and acceptance of a bid occurs with the fall of the
hammer: see Sale of Goods Act 1896 (Qld) s 59:

(1) In the case of a sale by auction

(a) when goods are put up for sale by auction in lots, each lot is prima facie deemed to be the
subject of a separate contract for sale;
(b) a sale by auction is complete when the auctioneer announces its completion by the fall of
the hammer, or in other customary manner: until such announcement is made any bidder may
retract his or her bid;
(c) when a sale by auction is not notified to be subject to a right to bid on behalf of the seller,
it is not lawful for the seller to bid himself or herself or to employ any person to bid at such
sale, or for the auctioneer knowingly to take any bid from the seller or any such person: any
sale contravening this rule may be treated as fraudulent by the buyer;
(d) a sale by auction may be notified to be subject to a reserved price, and a right to bid may
also be reserved expressly by or on behalf of the seller.
(2) When a right to bid is expressly reserved, but not otherwise, the seller, or any one person
on the seller's behalf, may bid at the auction.

What about auctions without reserve?

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If the auction is to be without reserve, the English cases hold that there is an obligation to
accept the highest bid: see Warlow v. Harrison (1859) 1 E & E 309, 120 ER 925.
In contrast in Australia see AGC (Advances) Ltd v Mc Whirter (1977) 1 BPR 9454 but cf
Ulbrich v. Laidlaw (1924) VR 247.

(c) Was the offer communicated to the offeree?

A person cannot accept an offer of which he is unaware: R v. Clarke (1927) 40 CLR 227 (Clarke was
unaware of the offer of a reward for information given to police). In this respect Gibbons v. Proctor (1891)
64 LT 594 is a difficult case.

The motive for accepting an offer is, however, irrelevant: see Williams v. Carwardine (1833) 5 Car. & P.
566; 172 ER 1101.

4. Termination of offer

An offer will cease to have effect if it is expressly revoked by the offeror, provided that the offeror
communicates his revocation before there has been an effective acceptance: Payne v. Cave (1789) 3 T.R.
148; 100 ER 502 OR
The offeree rejects the offer OR
The offeree makes a counter offer OR
A condition under which the offer is made cannot be met OR
There is a lapse of time.

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(a) Express revocation

In order to be effective a revocation of an offer must be communicated to the offeree. The postal rule is not
applicable: see Byrne & Co v. Van Tienhoven (1880) 5 CPD 344.

However, it seems that the revocation need not necessarily be communicated by the offeror: see Dickinson
v. Dodds (1876) 2 ChD 463.

(b)

Counter offer

See below LECTURE 3

(c) Failure of a condition

(d)

Lapse of time

An offer will lapse if it is not accepted within a time fixed by the offeror for its acceptance or, if no time has
been fixed, after a reasonable time for acceptance has passed. If the offeror fixes a time for acceptance, he
cannot be prevented from revoking his offer within that time unless he has agreed for good consideration, to
keep it open. This type of agreement is known as an option.

Ramsgate Victoria Hotel Co. Ltd. v. Montefiore (1866) LR 1 Ex 109

(e)

Death of offeror or offeree

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Carter v. Hyde (1923) 33 CLR 155

Laybutt v. Amoco Australia Pty Ltd (1974) 132 CLR 57

(f)

Revocation and unilateral contracts

In unilateral contracts acceptance is generally understood to be completion of the required act. Therefore if
Anna offers Bill 1,000 to walk to York, Anna can, in theory, revoke the offer at any time before Bill reaches
York: see GNR v. Witham (1873) LR 9 CP 16 at 19 Brett J:
If I say to another, If you will go to York, I will give you 100l., that is in a certain sense a unilateral
contract. He has not promised to go to York. But, if he goes, it cannot be doubted that he will be
entitled to receive the 100l. His going to York at my request is a sufficient consideration for my
promise.

This may cause hardship.

Restrictions:
In certain circumstances the terms of the offer may be such as to prevent revocation once performance has
started. The basis of this restriction is far from clear:
Abbot v. Lance (1860) Legge 1283
Errington v. Errington [1952] 1 KB 290 (Denning LJ)
Daulia v. Four Mill Bank [1978] Ch 231
Mobil Oil Australia Ltd v. Wellcome International Pty Ltd (1998) 81 FCR 475

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Possible communication problems

A unilateral offer to unascertained offerees might cause communication problems. However there is American
authority to the effect that revocation will be effective if made through the same channel as the offer was made:
see Shuey v. US (1875) 23 Led 697.

READING

Carter, Ch 3.

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LECTURE 3

ACCEPTANCE

HAS THE OFFER BEEN EFFECTIVELY ACCEPTED?

An acceptance must:

1.
2.
3.
4.

be given in response to the offer;

correspond with the offer;
be made by the prescribed method of acceptance;
be communicated to the offeror.

(a) Cross offers

Cross offers (two identical offers made more or less simultaneously) do not result in a contract as there is no
acceptance. Anna offers to sell 100 computers at 500 each. Bill offers to buy 100 computers at 500 each.
Neither party is accepting the others offer. Bills offer was a cross offer rather than an acceptance offer :
see Tinn v. Hoffman (1873) 29 LT 271

(b) The Mirror Image Rule

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An acceptance must be unconditional and correspond with the exact terms of the offer. If the response
seeks to vary the terms of the offer it is not an acceptance. It is a counter offer.

(i) Counter-offers
A counter offer destroys the original offer and is itself capable of acceptance: see Hyde v.
Wrench (1840) 3 Beav. 334, 49 ER 132.

(ii) Distinguish requests for further information

A counter offer should be distinguished from a request for further information. A request for
further information keeps the original offer open for acceptance: see Stevenson, Jacques & Co
v. McLean (1888) 5 QBD 346.

(c) The battle of forms

The mirror image rule sometimes results in what is known as the battle of the forms. This is where there are a
series of counter offers in negotiations until one is finally accepted.
Butler Machine Tool v. Ex-Cell-O [1979] 1 WLR 401

The plaintiff offered to supply a machine for a specific sum. The offer was expressed to be subject to a price
escalation clause under which the amount payable by the buyer was to depend on prices ruling upon date of
delivery. In reply to the offer the buyers placed an order with a form setting out their own terms and conditions
which did not contain a price escalation clause. It also contained a tear off strip to be signed by the sellers and
returned to the buyers stating that the sellers accepted the order on the terms and conditions stated therein. The
sellers signed it and returned it with a letter saying that they were entering the contract in accordance with
their offer.

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This can be represented by a diagram:

BUYERS

SELLERS

ENQUIRY

QUOTATION (OFFER)

ORDER (COUNTER OFFER)

ACKNOWLEDGEMENT (ACCEPTANCE)

The question for the Court of Appeal was whether the contract was concluded on the buyers or sellers terms.
It was said that it was concluded on the buyers terms. The letter from the seller was held to amount to an
acceptance of the buyers counter offer.
[1979] 1 WLR 401, 404, Lord Denning:
it will be found that in most cases when there is a battle of forms, there is a contract as soon as the
last of the forms is sent and received without objection being taken to it... The difficulty is to decide
which form, or which part of which form, is a term or condition of the contract. In some cases the battle
is won by the man who fires the last shot. He is the man who puts forward the latest terms and
conditions: and, if they are not objected to by the other party, he may be taken to have agreed to them...
In some cases the battle is won by the man who gets the blow in first. If he offers to sell at a named
price on the terms and conditions stated on the back: and the buyer orders the goods purporting to
accept the offer on an order form with his own different terms and conditions on the back then if

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the difference is so material that it would affect the price, the buyer ought not to be allowed to take
advantage of the difference unless he draws it specifically to the attention of the seller. There are yet
other cases where the battle depends on the shots fired on both sides. There is a concluded contract but
the forms vary. The terms and conditions of both parties are to be construed together. If they can be
reconciled so as to give a harmonious result, all well and good. If differences are irreconcilable so
that they are mutually contradictory then the conflicting terms may have to be scrapped and
replaced by a reasonable implication.

Lord Denning seems to reject the traditional approach of looking to see whether there is an acceptance which
mirrors the terms of the offer.

[1979] 1 WLR 401, 404, Lord Denning:

In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth
is out of date...The better way is to look at all the documents passing between the parties- and glean
from them, or from the conduct of the parties, whether they have reached agreement on all material
points-even though there may be differences between the forms and the conditions printed on the back
of them.

The other two judges in the Court of Appeal, Lawton LJ and Bridge LJ adopted the traditional approach of
looking to see whether an acceptance mirrors an offer.

Kriketos v. Livschitz [2009] NSWCA 96

(d)

Prescribed methods of acceptance

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Where an offer states that it can only be accepted in a particular way the offeror is not generally bound unless
the acceptance is made in that way.

Where the offeror prescribes a particular method of acceptance it is usually done with a particular object in mind
such as speed. Where this object can be achieved equally well or better by another method of acceptance from
that prescribed then this does amount to a valid acceptance:
Manchester Diocesan Council v. Commercial Investments [1970] 1 WLR 241

(e) Has the acceptance been communicated?

(i) General

Generally an acceptance will not be effective unless communicated. This means that an
offeree who does nothing on receipt of an offer which states that it may be accepted by silence
is not bound:
Felthouse v. Bindley (1862) 11 CB (NS) 869; 142 ER 1037

(ii) Implied waiver of communication requirement in unilateral contracts

Unilateral contracts are an exception to the general rule: see Carlill v. Cabolic Smoke Ball Co.
[1893] 1 QB 256

(iii) Acceptance by conduct

Brogden v. Metropolitan Railways (1877) 2 App Cas 666

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Empirnall Holdings Pty Ltd v. Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523

(iv) Postal rule of acceptance

If the post is an appropriate means of acceptance, the acceptance is deemed to be
communicated at the moment the letter is put in the post box: see Adams v. Lindsell (1818) 1
B & Ald 681;106 ER 250; Henthorn v. Fraser [1892] 2 Ch 27. Accordingly there is a contract
at that moment.

Tallerman & Co Ply Ltd v. Nathans Merchandise (Vic) Pty Ltd (1957) 98 CLR 93

Bresnnan v. Squires [1974] 2 NSWLR 460

This is so even if the letter never arrives: see Household Fire Co. v. Grant (1879) 4 ExD 216
The postal rule can be ousted by words in the offer requiring actual communication: see
Holdings v. Tullamarine Estates [1994] 1 VR 74, 83.

Is it possible to retract a postal acceptance?

Can a postal acceptance be overtaken by speedier means? For example can an offeree
telephone the offeror before the offeror receives the acceptance letter and say ignore my letter
I do not wish to accept your offer?

There is no binding authority on the point. See the arguments of Hudson, (1966) 82 LQR 169

27

Countess of Dunmore v. Alexander (1830) 9 S 190 is sometimes cited as an authority for this
point but that is dubious.

(v) Acceptances by telephone, telex, fax etc

Entores v. Miles Far East Co [1955] 2 QB 327

The Brimnes [1975] QB 929
Brinkibon v. Stahag [1983] 2 AC 34
Reese Bros Plastics Ltd v. Hamon-Sobelco (Australia) Ply Ltd (1988) 5 BPR 11

Internet contracts and e-mail contracts

Electronic Transactions Act 2001 (Qld)

S 23 Time of dispatch
(1) Unless otherwise agreed between the originator and the addressee of an electronic communication, the time
of dispatch of the electronic communication is
(a) the time when the electronic communication leaves an information system under the control of the originator
or of the party who sent it on behalf of the originator; or
(b) if the electronic communication has not left an information system under the control of the originator or of
the party who sent it on behalf of the originatorthe time the electronic communication is received by the
addressee.

28

(2) Subsection (1) applies even though the place the information system supporting an electronic address is
located may be different from the place the electronic communication is taken to have been dispatched under
section 25.

24 Time of receipt
(1) Unless otherwise agreed between the originator and the addressee of an electronic communication
(a) the time of receipt of the electronic communication is the time the electronic communication becomes
capable of being retrieved by the addressee at an electronic address designated by the addressee; or
(b) the time of receipt of the electronic communication at another electronic address of the addressee is the time
when both
(i) the electronic communication has become capable of being retrieved by the addressee at that address; and
(ii) the addressee has become aware that the electronic communication has been sent to that address.
(2) For subsection (1), unless otherwise agreed between the originator and the addressee of the electronic
communication, it is to be assumed that the electronic communication is capable of being retrieved by the
addressee when it reaches the addressee's electronic address.
(3) Subsection (1) applies even though the place the information system supporting an electronic address is
located may be different from the place the electronic communication is taken to have been received under
section 25.
These provision only deal with the time (eg effective service of documents) they do NOT deal with the
effectiveness of an acceptance.
READING
Carter, Ch 1
Eliza Mik, The Effectiveness of Acceptances Communicated by Electronic Means, Or Does the Postal
Acceptance Rule Apply to Email? (2009) 26 Journal of Contract Law 68

29

LECTURE 4

CERTAINTY

An agreement is not a binding contract if it lacks certainty either because it is VAGUE or INCOMPLETE.

A. VAGUENESS

An agreement may be so vague that no definite meaning can be given to it without adding new terms meaning
that the agreement cannot be enforced.

Scammell v. Ouston [1941] AC 251 on hire-purchase

Whitlock v. Brew (1968) 118 CLR 445 such reasonable terms as commonly govern such a lease

But cf Allcars Pty Ltd v. Tweedle [1937] VLR 36.

At the same time the courts show some reluctance to find that agreements are uncertain.

Hillas v. Arcos (1932) 43 Lloyds L Rep 359, 367 Lord Wright:

Businessmen often record the most important agreements in crude and summary fashion...it is...the
duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in
finding defects.

Prints for Pleasure Ltd v. Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761, 765:

30

[I]n dealings between business people there cannot always be certainty or predictability about the
future course of events arsing out of or in the performance of a business relationship which they desire
to, and may lawfully create.

The courts are especially reluctant to deny a contract for vagueness when the parties have commenced
performance: G Percy Trentham Ltd. v. Archital Luxfer [1993] 1 Lloyds Rep 25.

The courts have adopted various techniques to resolve the problem of vagueness:

Custom and trade usage.

Reasonableness: Hillas v. Arcos (1932) 43 Lloyds L Rep 359 agreement for the sale of timber of fair
specification.

Hall v. Busst (1960) 104 CLR 206

Severance of vague words as meaningless and redundant: Fitzgerald v. Masters (1956) 95 CLR 420

B. INCOMPLETENESS

An agreement is incomplete because the parties have left important points unsettled or because the agreement
expressly requires further agreement.

(i) Points not settled

A typical point not settled is the price:

31

Sale of Goods Act 1896 (Qld)

s 11 Ascertainment of price
(1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby
agreed, or may be determined by the course of dealing between the parties.
(2) When the price is not determined in accordance with subsection (1) the buyer must pay a reasonable price.
(3) What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

May & Butcher v. R [1934] 2 KB 17, concerns an agreement for the sale of tent fabric provided that price, date
of payment and manner of delivery should be agreed from time to time.

Foley v. Classique Coaches Ltd. [1934] 2 KB 1, concerns an agreement to buy petrol at a price to be agreed by
the parties from time to time.

The agreement may lay down machinery for resolving matters left open:
Hall v. Busst (1960) 104 CLR 206
Sudbrook v. Eggleton [1983] 1 AC 444
Booker Industries Pty Ltd v. Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600

(ii) Contract provides for alternative methods of performance

Thorby v. Goldberg (1964) 112 CLR 597

Transfield Pty Ltd v. Arlo International Ltd (1980) 144 CLR 83 best endeavours

32

Placer Development Ltd v. Commonwealth (1969) 121 CLR 353

Godecke v. Kirwan (1973) 129 CLR 629

(iii) Agreements to (or not to) negotiate

Agreements not to negotiate with third parties so called lock out agreements which are enforceable if there is a
time limit on their duration.

In England agreements to negotiate and to negotiate in good faith are not enforceable for uncertainty.

Walford v. Miles [1992] 2 AC 128

In Australia an agreement to negotiate in good faith may be enforceable.

Express Agreements

Coal Cliff Collieries Pty Ltd v. Sijehama Pty Ltd (1991) 24 NSWLR 1
Aiton Australia Pty Ltd v. Transfield (1999) 153 FLR 236
Macquarie International Health Clinic Pty Ltd v. Sydney South West Area Health Service [2010] NSWCA 268.

Implied agreements

Overlook Management BV v. Foxtel Management Pty Ltd [2002] NSWSC 17, [62]
Renard Construction (ME) Pty Ltd v. Minister for Public Works (1992) 26 NSWLR 234, 263-68 (Priestley JA)
Hughes Aircraft Systems International v . Airservices Australia (1997) 76 FCR 151, 192-93 (Finn J).

33

Contrast: GSA Group Pty Ltd v. Siebe PLC (1993) 30 NSWLR 573, 579.

Not definitively settled?

Royal Botanic Gardens and Domain Trust v. South Sydney City Council (2002) 240 CLR 45

Duty to cooperate

Butt v. MDonald (1876) 7 QLJ 68, 70-1

Secured Income Real Estate (Australia) Ltd v. St Martins Investments Pty Ltd (1979) 144 CLR 596, 607

C. NON-CONTRACTUAL SOLUTIONS TO UNCERTAINTY

Even if there is no contract because of uncertainty or no contract was entered into there may be a noncontractual solution for example where one party expends money as part of pre-contractual negotiations.

British Steel v. Cleveland Bridge & Engineering [1984] 1 All ER 504

Pavey & Matthews v. Paul (1987) 162 CLR 221

D. CONDITIONAL CONTRACTS

A CONDITION PRECEDENT means that the contract can only come into existence if a condition is satisfied.

34

A CONDITION SUBSEQUENT means that the contract is currently binding but may be ended by a condition
(event) happening.

A CONDITION PRECEDENT TO PERFORMANCE means that a contract is now binding but performance is
only triggered by a condition (event) happening.

These issues will be discussed in detail the context of performance in Semester 2.

SUBJECT TO CONTRACT CLAUSE

Masters v. Cameron (1954) 91 CLR 353

SUBJECT TO FINANCE CLAUSE

Meehan v. Jones (1982) 149 CLR 571

INTENTION TO CREATE LEGAL RELATIONS

So far we have been examining the concept of agreement. However, not all agreements are contracts. A
contract is a legally enforceable agreement. In other words it is an agreement which the law will enforce.
Generally there are two requirements of an agreement being legally enforceable:

35

(i) the parties must have intended to create legal relations

and
(ii) it must be supported by consideration

The first requirement of a legally enforceable agreement is that the parties must have intended it to be a legally
enforceable agreement. In other words the parties must have intended the agreement to attract legal
consequences in respect of breach.
Ermogenous v. Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105.

(a) Mere puffs

Lambert v. Lewis [1982] AC 225

(b) Traditional approach: domestic or commercial agreement?

Traditionally the first question which a Court would ask when dealing with intention to create legal relations
was whether the agreement was a domestic or commercial agreement.

(i) Domestic agreements

If the agreement was a domestic agreement, it was once thought that there was a presumption that the
parties did not intend to create legal relations. The position is now less clear.

36

Husband and wife:

Balfour v. Balfour [1919] 2 KB 571
Merritt v. Merritt [1970] 1 WLR 1211
Family Law Act 1975 (Cth)

Other family arrangements:

Jones v. Padavatton [1969] 1 WLR 328
Todd v. Nicol [1957] SASR 72

Social Agreements, Clubs and Political Parties:

Lens v. Devonshire Club (1914) The Times Dec 4th
Cameron v. Hogan (1934) 51 CLR 358
Baldwin v. Everingham [1993] 1 Qd R 10

The presumption against enforceability in these situations can be rebutted by evidence of contrary
intention to be legally bound.

(ii) Commercial agreements

By contrast if the agreement was a commercial agreement there was a presumption that the parties
intended to create legal relations.
Banque Brussels Lambert SA v. Australian National Industries Ltd (1989) 27 NSWLR 502

37

Again it is possible to rebut this presumption but this may be difficult.

(iii) Do the presumptions hold good?

Ermogenous v. Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Magill v. Magill (2006) 226 CLR 551, 614

(c) Agreements expressed to be without intention to create legal relations

This category includes honour clauses and comfort letters

Rose and Frank v. JR Crompton [1925] AC 445 (honour clause)
Kleinwort Benson Ltd v. Malaysia Mining [1989] 1 WLR 379 (comfort letter)
Commonwealth Bank of Australia v. TLI Management Ply Ltd [1990] VR 510 (comfort letter)

READING

Carter, ch 4

38

Lecture 5

CONSIDERATION

The general rule is that no DEED is required to enter into a contract. But some contracts do require a deed.
Otherwise in order to be binding a contract requires consideration.

Consideration is required when entering into a new contract or when modifying an existing contract.

The doctrine of consideration is contained in a series of rules which define what is and what is not treated in law
as consideration.

IT IS IMPORTANT THAT YOU BOTH LEARN WHAT THESE RULES ARE AND BE READY TO APPLY
THEM TO THE SPECIFIC FACTS OF ANY PROBLEM QUESTION, AND THINK MORE GENERALLY
ABOUT THE PURPOSE AND VALUE OF CONSIDERATION.

1.

What is consideration?

Consideration is founded on the idea of exchange. In Currie v. Misa (1875) LR 10 Ex 153, 162 Lush J stated:
A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit
accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or
undertaken by the other.

39

2.

Consideration must be causally related to the promise

Australian Woollen Mills Pty Ltd v. The Commonwealth (1954) 92 CLR 429, 461

3.

Compromises and forbearance to sue

Suppose that Anna, by her negligence, injures Bill. Bill promises not to sue Anna and in return Anna promises to
pay Bill, 10,000.
A promise not to enforce a valid claim is supported by consideration.
A promise not to enforce a claim known to be invalid is not supported by consideration: Wade v. Simeon (1846)
2 CB 548, 135 ER 1061.
A promise not to enforce a claim which is believed to be valid but is in fact invalid is supported by
consideration: Cook v. Wright (1861) 1 B & S 559, 121 ER 822.

4.

The consideration must not be past

Past consideration means consideration which predates a promise. For example, Anna paints Bills fence on
Monday and on the following Wednesday Bill says that he will give Anna 100 for painting his fence. If Bill
does not pay the 100, Anna cannot claim it in contract because it is past consideration. Anna did not paint Bills
fence in exchange for Bills promise.

Roscorla v. Thomas (1842) 3 QB 234, 237 Lord Denman CJ: the promise must be coextensive with the
consideration.

40

Anderson v. Glass (1868) 5 WW & AB 152

Pao On v. Lau Yiu Long [1980] AC 614, 629 Lord Scarman:

An act done before the giving of a promise to make a payment or to confer some other benefit can
sometimes be consideration for a promise. [1] The act must have been done at the promisors request: [2]
the parties must have understood that the act was to be remunerated either by a payment or the conferment
of some other benefit: and [3] payment, or the conferment of a benefit, must have been legally enforceable
had it been promised in advance.

5.

Consideration need not be adequate

Consideration need not be adequate. In other words it is generally irrelevant that a bargain is unequal. For
example an agreement between Anna and Bill that Anna will sell Bill a car for 1 when the car is worth
10,000 is supported by good consideration.
Chappel v. Nestle [1960] AC 87

6.

Consideration must move from the promisee

This rule is considered under the topic of privity in Semester Two. It means that a person to whom a promise is
made can only enforce that promise if he himself has provided consideration.

41

Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR 107

7.

Consideration must be sufficient

Although consideration need not be equal, it must be sufficient. In other words it must be something which the
Law recognises as consideration.

(i) Generally

Thomas v. Thomas (1842) 2 QB 851, 114 ER 330

White v. Bluett (1853) 23 LJ EX 36
Hamer v. Sidway (1891) 27 NE 256

(ii) Performance of existing duties

Traditionally performance of an existing duty was not sufficient consideration. This was due to the fact that the
other party was getting nothing more than what they were entitled to. If a party went beyond their duty that
would be sufficient consideration as the other party would be getting something which they were not entitled to.

Performance of a duty imposed by law

In Collins v. Godefroy (1831) 1 B & Ad 950, 109 ER 1040 the plaintiff was promised money to give expert
evidence at a trial. He was obliged to do this anyway as he had been summoned under subpoena. Accordingly
he had provided no consideration as he had merely done what he was obliged by law to do.

42

Cf. Going beyond duty

Glasbrook v. Glamorgan CC [1925] AC 270 (Police force providing, at the request of mine owner, more officers
at a strike than obliged to do)

Ward v. Byham [1956] 1 WLR 496, 498, Denning LJ:

The mother in looking after the child, is only doing what she is legally bound to do. Even so, I think
that there was a sufficient consideration to support the promise. I have always thought that a promise to
perform an existing duty, or for the performance of it, should be regarded as good consideration,
because it is a benefit to the person to whom it is given. Take this very case.

Popiw v. Popiw [1959] VR 197

Performance of a contractual duty owed to a third party

Performance of an existing duty owed to a third party is sufficient consideration. For example Anna enters into
a contract with Bill. Anna also wants to enter into a contract with Clive. She can furnish consideration for her
agreement with Clive by promising Clive that she (Anna) will perform his contract with Bill:
Shadwell v. Shadwell (1860) 9 CB (NS) 159
The Eurymedon [1975] AC 154

Performance of contractual duty owed to the promisor

43

Anna enters into a contract with Bill under which Bill is to do some work for Anna in return for 1,000. Before
Bill has completed the work Anna promises Bill 1,500 if he finishes the work. Can Bill claim the extra 500?

Traditionally the answer was in the negative. Bill is doing no more than he was contractually bound to do and so
Anna is getting no consideration in return for the additional promise: see Stilk v. Myrick (1809) 2 Camp 317, 170
ER 1168; (1809) 6 Esp 129, 170 ER 851.

This area of law has been refined by the decision of the Court of Appeal in Williams v. Roffey [1991] 1 QB 1.

In that case, while reaffirming Stilk v. Myrick, the Court of Appeal stated that it was possible to find
consideration even if the promisee was merely performing an existing contractual duty. In order to do so there
would have to be a factual or practical benefit to the promisor.

[1991] 1 QB 1, 15-16, Glidewell LJ.:

(i) If A has entered into a contract with B to do work for, or to supply goods or services to B in return
for payment by B; and (ii) at some stage before A has completely performed his obligations under the
contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and
(iii) B thereupon promises A an additional payment in return for As promise to perform his contractual
obligations on time; and (iv) as a result of giving his promise B obtains in practice a benefit, or
obviates a disbenefit; and (v) Bs promise is not given as a result of economic duress or fraud on the
part of A; then (vi) the benefit to B is capable of being consideration for Bs promise, so that the
promise will be legally binding...It is not in my view surprising that a principle enunciated in relation to
the rigours of seafaring life during the Napoleonic wars should be subjected during the succeeding 180
years to the process of refinement and limitation in its application in the present day.

[1991] 1 QB 1, 18 Russell LJ:

44

In the late 20th century I do not believe that the rigid approach to the concept of consideration to be
found in Stilk v. Myrick is either necessary or desirable. Consideration there must still be but, in my
judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention
of the parties to the contract where the bargaining powers are not unequal and where the finding of
consideration reflect the true intention of the parties...A gratuitous promise, pure and simple, remains
unenforceable unless given under seal. But where, as in this case, a party undertakes to make a
payment because by so doing it will gain an advantage arising out of the continuing relationship with
the promisee the new bargain will not fail for want of consideration.
[1991] 1 QB 1, 21 Purchas LJ:
The modern cases tend to depend more upon the defence of duress in a commercial context rather than
lack of consideration for the second agreement...the court is more ready in the presence of this defence
being available in the commercial context to look for mutual advantages which would amount to
sufficient consideration to support the second agreement under which the extra money is paid.

What were found to be the practical benefits to Roffey?

NB: The Court of Appeal were not very explicit about what should be regarded as a practical benefit. This
makes it very difficult to predict what future judges will treat as practical benefits. The following factors were
nevertheless alluded to:
Williams continued performance;
avoiding the trouble and expense of obtaining a substitute;
avoiding the penalty payment for late performance under the main contract; and
the institution of a systematized scheme for payment of the additional amount which occasioned a more orderly
performance by Williams, allowing Roffey to direct their other subcontractors more efficiently towards timely
completion of the main contract.

45

Several issues still remain unclear:

1.

Roffey concerns contractual modification rather than contractual formation. It is unclear if the practical
benefit approach will be used when the issue is whether there is sufficient consideration for a contract

2.

to be formed.
In Roffey at least four factors were identified which could constitute a practical benefit. This meant that
Roffey was a strong case for a finding of practical benefit. The elements may have potentially different
weight. In essence any potential breach of contract would cause trouble and expense. On the other hand

3.

without a penalty clause, would the Court have found a practical benefit?
What is the underlying motive for the decision? Clearly Roffey themselves may have thought that the

4.

promise to pay extra was to was to their benefit and the agreement was intended to be legally binding.
If in Roffey, Williams had promise to do more for example by promising to complete the work earlier
or do extra work there would be no difficulty in finding sufficient consideration on orthodox principles.

5.

For an example see The Atlantic Baron [1979] QB 705.

From one perspective Roffey is an innovative decision in the way that it seeks to find a way around
Stilk v. Myrick. From another point of view it actually reflects the truth of consideration rather more
than Stilk. Given that nominal consideration such as a peppercorn is treated as valuable consideration it
might be thought odd that an agreement that was seriously intended to be legally binding should not
count as a contract which was the case in Stilk.

Williams v. Roffey in Australia

Musumeci v. Winadell (1994) 34 NSWLR 723

Mitchell v. Pacific Dawn Pty Ltd [2003] QSC 86, [36]-[39]

Promises to accept part payment of debt in full payment of debt: enforceable?

A connected situation arises where Anna owes Bill some money and Bill says that he will accept less in full
payment of the debt. Is Bills promise supported by consideration?

46

Traditionally the answer was negative. Anna is not even fulfilling an existing obligation: see Pinnels Case
(1602) 5 Co. Rep 117a, 77 ER 237 & Foakes v. Beer (1884) 9 App Cas 605

What if there is a factual/practical benefit? Can we apply Roffey by analogy? Apparently not: see Re
Selectmove [1995] 1 WLR 474, 479 Peter Gibson L.J.:

The judge held that the case fell within the principle of Foakes v. Beer. In that case a
judgment debtor and creditor agreed that in consideration of the debtor paying part of the
judgment debt and costs immediately and the remainder by instalments the creditor would not
take any proceedings on the judgment. The House of Lords held that the agreement was
nudum pactum, being without consideration, and did not prevent the creditor, after payment of
the whole debt and costs, from proceeding to enforce payment of the interest on the judgment.
Although their Lordships were unanimous in the result, that case is notable for the powerful
speech of Lord Blackburn, who made plain his disagreement with the course the law had
taken in and since Pinnels Case and which the House of Lords in Foakes v. Beer, decided
should not be reversed. Lord Blackburn expressed his conviction, at p. 622, that all men of
business, whether merchants or tradesmen, do every day recognise and act on the ground that
prompt payment of a part of their demand may be more beneficial to them than it would be to
insist on their rights and enforce payment of the whole.

Yet it is clear that the House of Lords decided that a practical benefit of that nature is not good
consideration in law.

...if the principle of Williams v. Roffey is to be extended to an obligation to make payment, it

would in effect leave the principle in Foakes v. Beer, without any application. When a creditor
and a debtor who are at arm's length reach agreement on the payment of the debt by
instalments to accommodate the debtor, the creditor will no doubt always see a practical
benefit to himself in so doing. In the absence of authority there would be much to be said for
the enforceability of such a contract. But that was a matter expressly considered in Foakes v.

47

Beer yet held not to constitute good consideration in law. Foakes v. Beer was not even referred
to in Williams v. Roffey , and it is in my judgment impossible, consistently with the doctrine of
precedent, for this court to extend the principle of Williams's case to any circumstances
governed by the principle of Foakes v. Beer. If that extension is to be made, it must be by the
House of Lords or, perhaps even more appropriately, by Parliament after consideration by the
Law Commission.

Musumeci v. Winadell (1994) 34 NSWLR 723

Exceptions
Where several creditors jointly agree to forgo part of each of their debts and except a lower sum the rule does
NOT apply. This is known as a composition agreement.
Where the lower sum is paid by a third party rather than the creditor then there is good consideration.
Hirachand Punamchand v. Temple [1911] 2 KB 330
Sheahan v. Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407, 431.

DURESS
This topic will be covered in detail in Contract B

Crescendo Management Pty v. Westpac Banking Corp (1988) 19 NSWLR 40

Equiticorp Finance Ltd v. Bank of New Zealand (1993) 32 NSWLR 50, 106 (Kirby P):

48

What precisely the law is prepared to countenance as legitimate begs the question which needs to be
answered in characterising particular conduct as impermissible economic duress (on the one hand) or
the permissible (even necessary) operation of the market economy (on the other). There is no doubt that
in some circumstances commercial pressure may constitute duress.

READING
Carter, ch 6

49

LECTURE 6

ESTOPPEL

The parties to a contract may at any time vary (alter) its terms, but such variation has in general to have all the
characteristics of all of the characteristics of a contract, namely an agreement supported by consideration. To the
general rule there are some exceptions.

First, a party may waive a right which he has under the contract even if there is no consideration for the waiver.
For example Anna agrees to deliver one hundred computers to Bill by the 12th of December. Delivery is made
late on the 12th of January with the consent and agreement of Bill. Because he has waived his rights under the
contract Bill cannot sue Anna for breach of contract for late delivery.

Second, a party who has indicated that he will not enforce his rights under a contract may in some circumstances
be stopped from doing so. There are various types of estoppel. Lots of different terminology is used.

On the problems of terminology see:

Waltons Stores v. Maher (1988) 164 CLR 387, 413 (Brennan J)
Commonwealth of Australia v. Verwayen (1990) 170 CLR 394

The basic distinction is between Common law and Equitable estoppel.

A.

ESTOPPEL AT COMMON LAW

50

This is also known as estoppel by representation. It is limited to representations of existing FACT.

The person to whom the representation is made must rely to his DETRIMENT on the representation.
Where the doctrine operates it has PERMANENT effect.

Estoppel here is quite narrow it only concerns someone trying to denying a representation of fact on which the
other has relied to their detriment.

Jordan v. Money (1854) 5 HL Cas 185

B. ESTOPPEL IN EQUITY

A well established form of equitable estoppel is PROPRIETARY ESTOPPEL. It arises where a person does acts
in reliance on the belief that he has or will acquire in anothers land.

Estoppel in Equity also forms the basis of PROMISSORY ESTOPPEL made famous by Lord Denning in
Central London Property Trust v. High Trees House [1947] KB 130.

Hughes v. Metropolitan Railway Co. (1877) 2 App Cas 439

22nd Oct: Landlord [L] gives notice requiring repairs to be done within 6 calendar months
28th Nov: Tenant [T] suggests surrender of lease, repairs to be delayed in the meantime
1st Dec: L asks T to propose price

51

30th Dec: T writes suggesting 3000

31st Dec: L rejects price and asks for a modified proposal
19th April: T says he will put repairs in hand
[22nd of April: original notice expires]
28th April: L issues writ to eject T
June: Repairs completed

Lord Cairns LC, 448:

...it is the first principle upon which all Courts of Equity proceed, that if parties who have entered into
definite and distinct terms involving certain legal results certain penalties or legal forfeiture
afterwards by their own act or with their own consent enter upon a course of negotiation which has the
effect of leading one of the parties to suppose that the strict rights arising under the contract will not be
enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have
enforced those rights will not be allowed to enforce them where it would be inequitable having regard
to the dealings which have thus taken place between the parties.

Lord OHagan, 448-9:

...if they acted, or failed to act, through a mistake induced by the conduct of the Plaintiff: if they were
misled by it into the belief that his strict legal right was abandoned or suspended for the time, he cannot
be allowed to take advantage of the forfeiture which was so accomplished.

Birmingham and District Land Co. v. LNWR (1888) 40 Ch D 268

Bowen LJ, 286:

52

The principle has nothing to do with forfeiture...[I]f persons who have contractual rights against others
induce by their conduct those against whom they have such rights to believe that such rights to believe
that such rights will either not be enforced or will be kept in suspense or abeyance for some particular
time, those persons will not be allowed by a Court of Equity to enforce the rights until such time has
elapsed, without at all events placing the parties in the same position as they were before.

Central London Property Trust v. High Trees House [1947] KB 130

1937: the plaintiff granted a 99 year lease to the defendants at an annual rent of 2,500
1939: with the outbreak of the Second World War it is difficult to find tenants for flats in central London.
January 1940: plaintiff agreed to reduce the rent as from commencement of the lease to 1,250 per annum.
1941-1945: defendant paid a reduced rent.
September 1945: the flats were fully let and the plaintiff wrote to the defendant and informed them that 2,500
was the agreed rent and seeking arrears of 7,916.
Proceedings were instigated and the plaintiff claimed 625 which was the difference between 2,500 and 1,250
for the last two quarters of 1945.
Denning J awarded 625.

Denning J at 134, 136:

There has been a series of decisions over the last fifty years which, although they were said to be cases
of estoppels are not really such. They are cases in which a promise was made which was intended to
create legal relations and which, to the knowledge of the person making the promise, was going to be
acted upon by the person to whom it was made, and which was in fact so acted on. In such cases the
courts have held that the promise must be honoured...In each case the court held the promise to be
binding on the party making it, even though under the old common law it might be difficult to find any

53

consideration for it. The courts have not gone so far as to give a cause of action in damages for breach
of such a promise, but they have refused to allow the party making it to act inconsistently with it. It is
in that sense, and that sense only, that such a promise gives rise to an estoppels...[A] promise intended
to be binding, intended to be acted upon and in fact acted on, is binding so far as its terms properly
apply.

PROMISSORY ESTOPPEL IN AUSTRALIA

(i) Pre-existing legal relationships.

In this category of case the parties are already in a pre-existing legal relationship. Anne leases an apartment
from Bill on a five year lease. Anne pays rent of $500 a week. After four years because of a collapse in the
rental market Bill agrees to reduce the rent to $450 a week for the remainder of the lease if Anne stays in the
property.

Je Maintindral v. Quaglia (1980) 26 SASR 101

Legione v. Hately (1983) 152 CLR 406

(ii) No pre-existing relationship

The traditional approach to estoppel, and still the law in England, is that estoppel cannot be used to create new
rights. The argument is that to allow this would be to undermine the requirement of consideration. This fear was
expressed in the idea that estoppel can only be used as a shield and not a sword. The Australian courts have
allowed promissory estoppel to be used in this situation.

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Walton Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387

C.

ELEMENTS OF PROMISSORY ESTOPPEL

Walton Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387, 428-29 (Brennan J):

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the
plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant
or expected that a particular legal relationship would exist between them and, in the latter case, that the
defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has
induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from
acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so;
(5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not
fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the
assumption or expectation or otherwise. For the purposes of the second element, a defendant who has
not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to
have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's
property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's
reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails
to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is
conducting his affairs.

1.

ASSUMPTION

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In equitable estoppel the assumption is not confined to an assumption of fact. It also includes an assumption as
to future conduct.
Must the assumption relate to a legal relationship?
Walton Stores v. Maher (1988) 164 CLR 387, 428
Mobil Oil Australia Ltd v. Wellcome International Pty Ltd (1998) 81 FCR 475
Austotel Pty Ltd v. Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, 610

2.

INDUCEMENT

A clear and unambiguous promise or representation:

Legione v. Hateley (1983) 152 CLR 406
Such a promise can be express or implied.
What about silence?
Walton Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387

3.

RELIANCE

The promisee must rely on the promise to their detriment.

Je Maintiendrai Pty Ltd v. Quaglia (1980) 26 SASR 101

4.

UNCONSCIONABLE TO GO BACK ON THE PROMISE

Commonwealth of Australia v. Verwayen (1990) 170 CLR 394, 445 Deane J:

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Ultimately, however, the question whether departure from the assumption would be unconscionable
must be resolved not by reference to some preconceived formula framed to serve as a universal
yardstick but by reference to all the circumstances of the case, including the reasonableness of the
conduct of the other party in acting upon the assumption and the nature and extent of the detriment
which he would sustain by acting upon the assumption if departure from the assumed state of affairs
were permitted.

The conduct of BOTH parties is relevant to this question:

D & C Builders v. Rees [1966] 2 QB 617

D. PROMISSORY ESTOPPEL AS A REMEDY

Shield or sword?

Promissory estoppel can suspend rights it is a shield against a claim.

Promissory estoppel in Australia can probably also be used to enforce rights it can be used as a sword. This is
because despite some comments in the High Court that promissory estoppel can only be used to raise a defence
for example Commonwealth v. Verwayen (1990) 170 CLR 394, 445 (Deane J), if estoppel truly is a unified
doctrine, and no one doubts that proprietary estoppel does generate a cause of action, then it is difficult to accept
a narrow interpretation: see Commonwealth v. Verwayen (1990) 170 CLR 394, 426 (Brennan J).
There are examples in which promissory estoppel has been used as a cause of action:
Yarrabee Chicken Company Pty Ltd v. Steggles Ltd [2010] FCA 394.

Remedial flexibility

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Giumelli v. Guimelli (1999) 196 CLR 101

READING

Carter, ch 7

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APPENDIX

TENDERS A BRIEF NOTE

A typical example of a tender arises where A who wishes to build a new office block invites tenders from
construction companies B,C,D. As invitation to tender is an INVITATION TO TREAT. An invitation to treat as
in the other cases of an invitation to treat is an expression of willingness to negotiate. It is not the same as an
offer. An offer if accepted leads to a contract. In the example B,C,D submit tenders. Those parties submitting a
tender make an OFFER which A then accepts. Only at this point is there a contract. The contract arises as a
result of As acceptance of one of these offers.
As a result of this process the cost of preparing the offer and the risk that it might not be accepted falls on the
companies submitting the tender. This is regarded as a fact of life and acceptable business practice. In the same
way pre-contractual negotiations do not in English law normally create legally binding obligations. The courts
are nevertheless concerned about some of the other consequences that flow from the rule that an invitation to
tender is simply an invitation to treat rather than an offer. Because the party seeking tenders is only making an
invitation to treat rather than an offer it means, using the example, that in theory A could simply ignore the
offers of B and C to the extent that he does not consider them. This was the problem facing the Court of Appeal
in Blackpool & Fylde Aero Club v. Blackpool BC [1990] 3 All ER 25.

Blackpool & Fylde Aero Club v. Blackpool BC [1990] 3 All ER 25

The Council granted a concession to allow operators to run flights from its airport. The Claimant, Blackpool and
Fylde had operated the concession for a number of years. On this occasion the claimant was one of a number of
parties who submitted tenders. The council did not consider the claimants tender even though it was submitted
by the deadline. Instead the contract was awarded to Red Rose Helicopters.

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The Court of Appeal held that the invitation by the Council to submit tenders was an invitation to treat.
Blackpool and Fylde and the others who submitted the tenders were the parties who were making the offers. The
Council were free to accept Blackpool and Fyldes offer or any of the other offers. In fact they accepted the offer
of another party and the contract was formed. There was no way that Blackpool and Fylde could secure the
tender. Nevertheless the Council were under some obligation to Blackpool and Fylde. The Court of Appeal
reached this result by a two contract analysis.

The first contract was the tender itself. Here the Council had a contract with Red Rose Helicopters. There was
also second implied contract with Blackpool and Fylde. The Council made an offer of a unilateral contract to
consider a timely and conforming tender. By submitting a tender Blackpool and Fylde accepted the offer.

Bingham LJ at 31:
I think it plain that the council's invitation to tender was, to this limited extent, an offer, and the club's
submission of a timely and conforming tender an acceptance.

The implied unilateral contract only imposed limited obligations on the Council. It did not mean that they had to
accept Blackpool and Fyldes offer.

The important passage in the judgement is when Bingham LJ explains:

A tendering procedure of this kind is, in many respects, heavily weighted in favour of the invitor. He
can invite tenders from as many or as few parties as he chooses. He need not tell any of them who else,
or how many others, he has invited. The invitee may often, although not here, be put to considerable
labour and expense in preparing a tender, ordinarily without recompense if he is unsuccessful. The
invitation to tender may itself, in a complex case, although again not here, involve time and expense to
prepare, but the invitor does not commit himself to proceed with the project, whatever it is; he need not
accept the highest tender; he need not accept any tender; he need not give reasons to justify his

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acceptance or rejection of any tender received. The risk to which the tenderer is exposed does not end
with the risk that his tender may not be the highest (or, as the case may be, lowest). But where, as here,
tenders are solicited from selected parties all of them known to the invitor, and where a local authority's
invitation prescribes a clear, orderly and familiar procedure (draft contract conditions available for
inspection and plainly not open to negotiation, a prescribed common form of tender, the supply of
envelopes designed to preserve the absolute anonymity of tenderers and clearly to identify the tender in
question and an absolute deadline) the invitee is in my judgment protected at least to this extent: if he
submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but
of contractual right, to be sure that his tender will after the deadline be opened and considered in
conjunction with all other conforming tenders or at least that his tender will be considered if others are.
Had the club, before tendering, inquired of the council whether it could rely on any timely and
conforming tender being considered along with others, I feel quite sure that the answer would have
been 'of course'. The law would, I think, be defective if it did not give effect to that.

When will such a contract be implied?

Bingham LJ explains:
I readily accept that contracts are not to be lightly implied. Having examined what the parties said
and did, the court must be able to conclude with confidence both that the parties intended to create
contractual relations and that the agreement was to the effect contended for.
In the passage above Bingham LJ identified some special features of the tender in questions which led him to
imply a contract namely:
1.

The tenders were solicited from a small group of parties all known to the Council;

2.

The Council prescribed a precise procedure which the tendering parties had to go through;

3.

The duty to consider was consistent with the parties intentions.

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There were other factors in the case which may have been relevant although Bingham LJ did not explicitly state
what these were. Perhaps it was important that Blackpool and Fylde Aero Club were the current holders of the
concession and had operated the concession for a considerable time. The fact that the party inviting tenders was
a public body may also have been relevant. It is in the public interest if public bodies consider all conforming
tenders in order to secure the best deal for the tax payer. It seems unlikely in the run of the mill case that the
courts will be prepared to imply a second unilateral contract in the way in which the Court of Appeal was
prepared to do here. If faced with a problem question on tenders in the exam you need to look and see if any of
the facts in the problem are similar to those in Blackpool and Fylde.

The content of the contract is a little unclear. Bingham LJ states, that as the result the tender will be considered,
in conjunction with all other conforming tenders or at least that his tender will be considered if others are. On
the facts the other tenders were considered. But suppose that the Council had refused to consider any of the
tenders.

Other points to consider:

The rule that an invitation to tender is an invitation to treat is only a prima facie rule. It can be displaced by
evidence of contrary intention. It is conceivable that if the parties intended such an outcome that an invitation to
tender could be an offer and the submission of tenders an acceptance. This was not the intention of the parties in
Blackpool and Fylde and Bingham LJs judgement seems to suggest that the courts will not usually be prepared
to depart from the prima facie rule and did not do so in the case before him.

The contract to consider all conforming tenders may only be an obligation to consider all conforming tenders in
so far as it is reasonable to do so, see, Fairclough Building Ltd v. Port Talbot BC (1993) 62 Build LR 82.

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The same kind of approach in which the courts adopt a two contract analysis may have other uses in tendering.
In Harvela Investments v. Royal Trust of Canada Ltd [1986] AC 207 the defendant (RTC) was seeking to sell its
shares by sealed competitive tender. It invited two parties most likely to be interested in the shares to submit a
single sealed offer for the shares and stated that they would accept the highest offer which complied with the
terms of the tender.
Claimants (HI) tendered a fixed bid of $2,175,000.
The second defendant tendered, $2,100,000 or $101,000 in excess of any other offer which ever his higher.
This is known as a referential bid in that the amount paid is determined by reference to other offer.
The defendant accepted this bid taking it to be $2,276,000.
The bid of the second defendant was not a conforming bid because a referential bid frustrated the purposes of
RTC which was to ascertain the highest amount which each party was prepared to pay a referential bid did not
make this absolute sum ascertainable.

Lord Diplock seems to suggest that when RTC sent out an invitation to bid for the shares they entered into a
unilateral contract with the potential bidders that they would accept the highest bid for the shares. The potential
bidders were not bound to do anything. This unilateral contract became a bi-lateral contract between RTC and
HI to sell the shares once HI had made the highest bid.

As was the case in Blackpool and Fylde the Privy Council accepted that the party submitting the tender was the
one making the offer to buy the shares. This is the orthodox analysis of tenders. But equally as in Blackpool and
Fylde a second contract was implied, not in this case to ensure that all the bids were considered, but to ensure
that as a result of this contract RTC were bound to accept the highest bid.

Lord Diplocks speech is rather confusing. A better way of explaining the outcome can be derived from an
analysis first put forward by the late Professor John Smith, see R Brownsword, Smith & Thomas: A Casebook
on Contract (Sweet and Maxwell, London, 2009) pp. 37-38.

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The process can be described in stages:

In order to understand Harvela it is best to break the process down into stages with two contracts. The main
contract is the contract to sell the shares:

STEP 1 RTC: Please submit tenders by...we will accept the highest offer
Contract 1: merely an invitation to treat like any other invitation to tender.
Contract 2: an offer of a unilateral contract to accept the highest offer.

STEP 2 HI: we are prepared to pay $2,175,000 This is the highest conforming tender.
Contract 1: Is an offer to buy the shares. Just like any other tender, the tender amounts to an offer.
Contract 2: By submitting an offer, HI accepts the offer of the unilateral contract. At this point the unilateral
contract is complete and RTC are bound to sell the shares to the highest conforming bidder i.e. HI. Because this
is a separate contract a further step would be required to complete the purchase. This was not actually taken on
the facts because the shares were sold to another party.

STEP 3 RTC: we accept your offer to pay $2,175,000 for the shares.
Contract 1: this contract still needs to be completed by RTC accepting HIs offer. In practice they are already
bound to sell the shares to HI because of contract 2. But until they accept HI could withdraw their offer.

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