A. Identify issues ----> Issues: what is the law? ------> Exceptions in the law ----------> Analysis -----------> Advice

B. EXAM:

1. 3 blocksa) Formation

b) Terms

C. Gibson v Manchester City Council

1. The background was that the Council had decided to sell council houses - that is, publicly-owned houses provided to those who could not afford to rent or buy - to their respective tenants.

2. The policy was changed and it was decided that only those houses for which there was a contract would be sold and then the sales would stop.

3. Gibson and a number of other tenants reckoned they had a contract.

4. This was a test case, in fact, for a number of alleged contracts.

5. What had taken place to justify the contract argument? a) There had been an exchange of correspondence.

6. The correspondence is reproduced in Lord Diplock's judgment, particularly the Council's response to a request for details from Mr Gibson.

7. It was argued that the words making it clear that no mortgage was being offered tended to mean that a sale was being offered. A sort of expressio unius approach.

8. But Lord Diplock dismissed this and said that the meaning of the words in the first para, namely, "the corporation may be prepared to sell..." was quite plain.

9. Issue of language

D. Withdrawal of a Posted Acceptance

1. Can the offeree revoke by speedier means?

E. Instantaneous Communication (of Acceptance) by Mechanical/Electronic Means

1. eg. telephone, telex, fax, ...

2. These are assimilated to face-to-face negotiations.a) Entores decision

F. An Example from the Case Law:

1. Brinkibon v Stahaq Stahl etc [1983]a) there is no universal rule

b) we sometimes need to consider: (1) the parties’ intentions(2) sound business practice

(3) where the risk should lie

II.CERTAINTY AND COMPLETENESS A. GENERAL PRINCIPLES (see Biotechnology Australia v Pace (1988)):

1. In order to be binding, an agreement must be sufficiently certain, at least in its ESSENTIALS:a) Parties;

b) Principal undertakings;

c) Subject matter;

d) Price.

2. Biotechnology Australia v Pace (1988)a) Pace entered into a contract of employment with Biotechnology.

b) The contract provided that Pace would be able to participate in the company's equity sharing scheme. This is a scheme which allows employees to have shares in the employer company.

c) There was at the time no such scheme and no scheme was ever instituted.

d) Pace ended his contract and then claimed that he was owed money representing the benefits which he should have received under the scheme.

e) His claim was ultimately unsuccessful.

f) The NSW Court of Appeal held by a majority of 2-1 that the term relating to the scheme was either uncertain or illusory. In the course of the judgements the law and policy in this area was given a thorough airing.

g)

B. If an agreement is uncertain, then the contract is VOID (unless severance is possible).

1. Only going to get severance if contract is divisible

C. An agreement may be uncertain in either, or both, of two ways:

1. UNCLEAR ~ eg, vague, ambiguous, or meaningless language is used

2. INCOMPLETE ~> no "agreements to agree"

D. Modern courts endeavour to uphold the validity of agreements -- no "pedantic approach" is warranted.

1. Not an overly strict approach

E. The determination of each case depends on its own facts.

F. The meaning of an agreement must be discovered OBJECTIVELY.

G. The courts seek only to give effect to the contract, not to change it.

1. Court will not draft a contract/change contract for the parties

2. If they can't give effect to the contract, it must fail

H. "Difficulty of interpretation" must be distinguished from "absence of meaning".

I. The courts are far more likely to enforce or perfect agreements that have largely been performed by one or both of the parties.

J. Devices in Aid of Validity:

1. UNCLEAR CONTRACTSa) Objective test;

(1) Can draw inferences from language to determine objective meaning of clauses

b) Appeals to external or "reasonableness" standards;

c) Implied terms; (1) Drawing inferences/'reading between the lines'; deduce from express terms what the parties implicit intentions were

d) Subsequent actions of the parties

(1) Look at how the parties are actually performing contract to shed some light on contract

2. INCOMPLETE CONTRACTSa) Implied terms (?);

(1) Court may be able to imply a term to mend the gap in the contract

b) Stated machinery or formulae (not being the parties’ own future agreement).

K. “Machinery”

1. Independent valuation

2. Arbitration

3. “Market” pricea) Objective

L. “Formula”

1. “Contract price + % increase in Consumer Price Index”

2. “Market” price

M. "Severance" (the "Blue Pencil")

1. Where severance is possible, the uncertain part is ignored and the rest of the contract is enforced.

2. If severance is not possible, the whole contract must fail.

3. Whether or not severance is possible is a question of CONSTRUCTION (ie, it depends on the parties’ apparent intentions).

a) Refer: Whitlock v Brew (1968)

N. “Contingent Condition”

1. An external event or fact upon which the parties' obligations in some way depends

2. Very common in contractsa) “Conditions precedent”

(1) Contract is not binding until the event or fact occurs. (a) “Conditions precedent to formation” - true conditions precedent

(i) “Subject to contract”

b) Masters v Cameron (1) whether a deposit which had been paid by the buyer should be forfeited by the buyer or whether it could be claimed back by the buyer. This, in turn, depended on whether there was a contract between the parties. The buyer pulled out and, if there was a contract, then the buyer would forfeit the deposit.(2) So, was there a contract? The parties had signed a document which in fact contained all the requirements of a validly enforceable agreement, that is, it clearly stated who were the parties, the property to be sold was properly described and the price was stated. However, the document also contained the words set out in the headnote on p 23

(a) "This agreement is made subject to the preparation of a formal contract of sale..."

(3) the enforceability of this agreement depends entirely on the effect of these words. The Court then goes on to analyse what possible effect such words can have. This analysis has been cited many times since and is a classic statement of the issues. Such a form of words (i.e "subject to contract" or similar) may have 3 possible effects:

(a) It may be that the parties intend that the present agreement should be immediately binding but it is contemplated that it will be expressed in a more formal document later.(b) It may be that the parties intend to be immediately bound but that performance of one of the terms is dependent on the execution of a more formal document later. For example, "Payment on the execution of a formal contract..."(c) It may be that the use of the words "subject to contract" means that the parties do not intend to be immediately bound but instead intend only to be bound to contract when a properly drawn up contract has been executed.

(4) The Court then went on to decide that the present case fell into the third category and that there was therefore no contract.

(5) In coming to this decision, the Court stated that the words "subject to contract" or similar expressions did not absolutely or necessarily mean that no contract was intended. But they went on to say that the words had a pretty clear meaning and that normally they will have the effect of excluding contract. The precedent cases supported the view that, if the parties use such words, then there is a strong presumption that they are intending to delay contractual relations. (6) The expression "subject to contract" is used in every day dealings between lawyers and it is safe to assume that its meaning is so well-known that there is no doubt at all that it achieves its intended effect, namely, to ensure that no contract comes into existence until a formal contract is signed.

(a) “Conditions precedent to performance or completion”

c) Manchester Diocesan(1) MD called for tenders relating to property.(2) C&G submitted a tender (offer to buy). (3) The tender stated that acceptance was to be notified to the person whose tender was accepted by letter sent ‘by post addressed to the address given in his tender’.(4) MD decided to accept C&G tender and sent their acceptance to the CG's solicitor, which was not the address given in the offer.(5) C&G knew of this acceptance. (6) Was there a contract? In particular, was a mandatory form stipulated for acceptance and, if so, was it complied with?(7) The method of acceptance prescribed in the tender was not mandatory - here the offeror was made aware of the acceptance by an equally effective method and thus the acceptance was effective.

(i) Gibbs CJ in Meehan v Jones

(8) “Condition subsequent”(a) Contract is binding, but it ends if the event occurs

(i) Mason J in Meehan v Jones

III.THE CASES:

A. Meehan v Jones (1982)

1. Purchaser brought an action for specific performance; defendant argued contract was uncertain

2. Contract subject to "... finance on satisfactory terms and conditions …" (clause 1 (b))a) Contract valid (clause 1 (b) not uncertain)

3. Gibbs C J:a) the Court, in construing a contract, can decide which of two possible meanings the parties intended

b) a contract is uncertain only if no definite meaning can be found

c) clause 1 (b) left it to the purchaser himself to decide whether the terms and conditions of finance were reasonable (ie, favours a subjective, "honesty" test)

4. Mason J:a) Clause 1 (b) was not uncertain

b) courts are quite capable of deciding whether the purchaser was acting honestly, or honestly and reasonably (as the case may be)

c) ~ the clause was therefore valid

d) ~ the purchaser’s discretion was not unfettered (therefore not illusory)

5. Note the distinction between conditions "precedent’ and conditions "subsequent’. R

B. Whitlock v Brew (1968)

1. The problem in this case arises out of Special Condition 5 which specified that the purchaser of land must enter into a lease agreement with the Shell Co or its nominee "upon such reasonable terms as commonly govern such a lease".

2. By itself, this clearly is uncertain, either because it is simply too vague or because it is an agreement to agree.

3. But the clause does then attempt to deal with the problem of a failure to agree by referring to an arbitration machinery.

4. The question which the court had to decide was whether the contract could be saved despite the uncertain clause. If the contract could not be saved, then it was void, that is, it was a nothing from the start.

5. If so, the deposit paid would have to be returned to Brew the purchaser.

6. If, on the other hand, the contract could be saved (it was held not to be void from the beginning) then Brew, who pulled out of the deal, would forfeit the deposit.

7. Kitto J:a) language clear but parties failed to reach a concluded agreement

b) no ascertainable set of reasonable terms were in common use

c) too many essentials omitted (eg, duration of term; rent)

d) arbitration clause too narrow to allow an arbitrator to fill in the gaps (the Court cannot alter the parties' agreement)

e) Clause not severable; to sever would be to change the nature of the agreement

8. Taylor, Menzies, Owen J J:a) the machinery (arbitration clause) was not apt to fix duration or rent

b) it was too narrow to cover the situation

c) the clause was uncertain (no means for determination was provided)

d) the question of severance is determined by the intention of the parties as disclosed by the contract as whole

e) the clause was too definitive of the purchaser’s rights to be ignored or waived (1) therefore inseverable

R

C. Scammell v Ouston [1941] a) " ... on hire purchase terms over a period of two years …"

b) Hire purchase never happened, Ouston refused to supply the van

2. No contract

3. Two grounds:a) 1. the language was too obscure and imprecise ("all left too vague")

(1) What type of hire purchase agreement? Expert witnesses all gave varying explanations

b) 2. the parties never reached agreement -- they were still negotiating ("incompleteness")

c) You cannot have an “agreement to agree”

D. Fletcher Challenge Energy v ECNZ [2002]

1. Note the two-hurdle process:a) Proof of contractual intention: By signing the document, did the parties intend to be immediately bound to its terms? (an objective and "entirely neutral" inquiry)

(1) “threshold” step

b) If so [presumption of enforceability], are the terms of the agreement legally sufficient to constitute a contract? (an objective but biased inquiry: Does the failure to reach agreement render the contract as a whole "unworkable in the sense of it being impossible for performance of [the] terms to be effective?", ie, "lacking in business efficacy"? = "a matter of fact and degree")

2. These are distinct but interrelated questions.

E. Sudbrook Trading v Eggleton [1983]

1. Sudbrook had granted Eggleton option to buy freehold of lease at valuationa) Each party was to appoint a valuer; if those valuers were unable to agree on a price,

they would refer to a 3rd person

b) Lawyers drafted machinery, but didn't prepare for what would happen if one party didn't appoint a valuer; Lessor refused to appoint a valuer

c) Lessee brought a claim seeking a declaration from court that option was validly exercised and contract should be specifically performed

d) Landlord argued without price contract was uncertain

2. Question for court was: Was option valid?

3. this case clearly indicates a trend toward judicial leniency

4. it concerns machinery rendered inoperable or breaking down

5. the exercise of the option constituted a valid contract (the price was capable of being ascertained and therefore was certain)

6. Principle on which case decided: a) Where a contract contains a machinery provision for working out an incomplete matter such as price, and that machinery is an inessential aspect of the party's bargain, if the machinery breaks down for any reason, the court can adopt or substitute any other means for determining the complete matter

7. but NOTE the qualifying distinction between cases where the mode of ascertaining the price is essential to the main purpose of the parties’ agreement and where it is merely subsidiary and non-essential

a) Inessential price – if parties agreed to sell for fair or market value

b) Essential price – if parties agreed to sell for a specific value

c) In this case the parties agreed to two unnamed valuers who are duty-bound professionally to be reasonable in ascertaining a fair/market price

8. note, too, Lord Russell’s vehement dissent based on precedent

F. Agreements to Negotiate

1. Traditionally, the courts have not accepted as valid a "contract"....a) to make a contract; or

b) to "negotiate" a later agreement:

c) Walford v Miles [1992](1) Here it was reiterated that there is no such thing in the law of contract as an agreement to negotiate. (2) However, the House of Lords was prepared to recognise what is called a lock-out agreement. (3) This is an agreement not to negotiate with anyone else for a certain time. So long as there is a consideration for such an agreement, or there is a deed under seal, it is legally valid. (4) It, too, involves limited obligations. It obliges the person not to negotiate with anyone else. It does not oblige the person to negotiate with the other party to the lock-out agreement. (5) The House of Lords went on to hold that the "lock-out" agreement was not enforce

d) but compare Coal Cliff Collieries v Sijehama (1991 )(1) The parties signed an agreement which was designed to be a commitment by the parties to continue negotiating(2) One of the parties pulled out of the negotiation(3) The contract to negotiate a contract was held to be too vague; but...(4) Kirby P rejected the idea that such contracts were intrinsically unenforceable and that in some circumstances a promise to negotiate in good faith can be enforceable (if there is consideration)

(a) It will depend on the construction of each particular contract.

IV.INTENTION TO CREATE LEGAL RELATIONS

A. The Rule:

1. The parties must INTEND that their relation be attended by legal consequences.

2. The requisite intention is determined OBJECTIVELY and as an inference of FACT.

B. in this respect, the law had traditionally drawn two REBUTTABLE PRESUMPTIONS (deriving from "experience of life and human nature"):

1. Family, Social, or Domestic Agreementsa) The law assumes that the parties prefer to rely on “family ties of mutual trust and affection”

b) It therefore presumes that there is NO intention to create legal relations

2. Commercial Agreementsa) The law presumes an intention to create legal contractual relations

V.Social, Family, or Domestic Agreements:

A. eg, husband and wife; parent and child

B. Balfour v Balfour [1919] - "amicability"

1. cf. Popiw v Popiw [1959] (later) "formality" R

C. Jones v Padavatton [1969] -"uncertainty"

1. More uncertain it is, the less courts are going to imply intention

D. Ermogenous v Greek Orthodox Community of SA Inc (2002)

1. note that the onus is on the plaintiff

VI.Commercial Agreements:

A. The presumption in favour of legal intention is difficult to rebut (the language must be clear and unambiguous -- eg, "honour clauses").

1. Edwards v Skyways Ltd [1964] ("ex gratia" payment)a) note that there is a HEAVY onus on the defendant

b) Edwards was made redundant on 3 months notice from Skyways

c) Edwards was given option: either choose to keep contributions to pension in the scheme and get a full pension upon retirement; or he could withdraw all his contributions and they would make him an 'ex gratia' payment equivalent to his contributions

d) Chose to withdraw his funds, but he wasn't given the 'ex gratia' payment; sued for breach of contract

e) Company argued that use of 'ex gratia' negated legal intention

f) Heavy onus on defendant; court said the words 'ex gratia' were not strong enough to displace intention

VII.POSTPONING CONTRACTUAL RELATIONS:1. eg, "subject to contract"

B. These words create a very strong presumption that NO contract is intended until the execution of a formal document

1. ie, execution operates as a condition precedent to the formation of a contract; postpones formation of the contract

(1) Words such as “subject to formation”

b) Masters v Cameron (1954)(1) the matter depends upon the parties’ INTENTION as disclosed by the language they have employed(2) Masters wanted to buy farm property off Cameron, agreed to terms, and made 10% deposit to agent(3) “subject to preparation of formal contract of sale”(4) Solicitor had power to negate the contract

2. Does the person have power to alter the contract? If yes, no finality.

VIII.CONSIDERATION

A. In theory and practice, "consideration" plays a CENTRAL, discriminating role in contract law.

1. R The General Principle:a) A person is contractually bound to perform a promise only if consideration was given for it.

(1) ie, consideration must MOVE FROM the promisee. (2) Whenever asking if consideration exists, always asking has the promisee given consideration

B. A Working "Definition" of Consideration:

1. "Some act or forbearance involving legal detriment to the promisee, or the promise of such an act or forbearance, furnished by the promisee as the agreed price of the promise."

a) Promise – if you promise to deliver something next week, in return for payment next week, you are bound today

C. Note that the emphasis is on BARGAIN (ie, EXCHANGE).

1. A contract is a bargain struck between the parties by an exchange.

IX.The upshot of this analysis:

A. Between promise and counter-promise, act or forbearance, there must exist the relation of a "quid pro quo".

1. “this for that”; given this promise for that consideration

B. There is a need to imply, or infer, an element of cause and effect between the promise and the consideration.

1. Look for a REQUEST, express or implied.

C. Acceptance of the bargain theory of consideration amounts to a rejection of a reliance-based theory of consideration:

1. See Beaton v McDivitt (1987) a) McDivitt had 25 acres of land and had a scheme to reduce his rates; his scheme was to have people come on and farm portions of the land using permaculture methods

b) Beaton was one of them who came onto the land to farm the land and live there

c) After 7 years, McDivitt kicked him off the land

d) Beaton said there was a contract

e) Court ruled there was no “quid pro quo” as Beaton was tending the land for his own benefits, and that it was so one-sided that it was more like a gift to Beaton

2. McHugh JA distinguishes three situations:a) A promise to transfer property subject to the occurrence of an external event or condition.

(1) The promise is not enforceable even if the event or condition occurs.(2) ie, = a "conditional gift’ situation

b) A promise to transfer property after which the promisor allows the promisee to act to his or her detriment in reliance on the promise.

(1) Ex. You are promised to have your rent cut in half, so you go and furnish a car loan in reliance upon the promise, and then it is renegged upon.

(a) But, no “quid pro quo” so it is not enforceable

(2) Depending on the circumstances, equity may prevent the promisor from insisting on his or her strict legal rights and may enforce the promise (despite its being gratuitous) so as to avoid an "unconscionable" result.(3) ie, = an "estoppel’ situation.

D. A promise to transfer property, which promise contains an express or implied request by the promisor for the promisee to do an act or fulfill a condition (eg, to furnish a counter-promise).

1. The doing of the act or the fulfilling of the condition by the promisee on the faith of the promise will usually constitute "consideration" and create a binding contract.

a) ie, = a "contract’ situation.

b) (but cf. a "conditional gift" situation where the condition is inter partes)

X.Other General Principles:

A. Consideration must move from the promisee (but it need not move to the promisor)

1. ie, only the person who has paid the price of the promise can sue on it.

B. Compare the Privity Rule:

1. Only a person who is a party to a contract (ie, a person to who has accepted an obligation under a contract) can sue on it.

C. Consideration need not be ADEQUATE (ie, commensurate economically with the promise it is intended to support) …

1. ex. if I promise you a jumbo jet for $1, the law cannot 2nd guess the value/judgment; lets you put your own value on it

a) Law doesn't engage in a quantitative discussion; as long as it's voluntarily made

2. “peppercorn consideration” or “nominal consideration” - Thomas v Thomas

D. Illustrations from the Case Law:

1. Thomas v Thomas (1842) a) Thomas wanted his widow to have his home for 1-pound per year rent

b) The widow tended a contract for the executor to sign but he refused

c) Defendants argument was that payment was just a condition to a gift(1) Might have been if it was a payment to the husband(2) But the payment was to strangers

d) Justice Coleman said as long as the consideration exists, it doesn't matter where in the document you find it

2. Hamer v Sidway (1891)a) Uncle promised nephew he would pay him money at age 21 if he followed certain conditions in regards to not drinking, smoking, etc.

b) Uncle said he would keep the money until he thought the nephew was ready to appreciate it; nephew agreed but uncle died some time later prior to giving him the money

c) Sidway, executor, said there was no consideration; said there was no 'legal detriment' from the nephew in giving up drink, etc.

d) Court refused to speculate on how difficult it was for nephew to give up his problems(1) Sufficient that nephew gave up his wilfull freedoms in consenting to his uncle's terms

3. (Note the problem with benefit-detriment analyses of consideration.)

XI.But...

A. It must be SUFFICIENT (ie, pass the legal threshold of "valuable").

1. Must be legal detriment that moves from the promisee that has value in the eye of the law; Hamer v Sidway, nephew's legal freedom was sufficiently valuable

B. EXAMPLES OF INSUFFICIENT("VALUELESS") CONSIDERATION:

1. Illusory Consideration:a) At first blush there is an illusion or appearance of consideration, but closer analysis reveals that the promise is an empty one.

2. Examples of Illusory Consideration:

3. Optional or Discretionary "Promises" :a) British Empire Films v Oxford Theatres [1943]

(1) Oxford & British Empire Films entered into a contract for 5 years for Oxford Theatres to only screen British Empire Films(2) But within the 5 year period Oxford tried to screen films by other companies(3) British Empire Films sued to impose an injunction on Oxford(4) Clause 9 provided British Empire Films with no obligation to deliver the films; illusory consideration

b) MacRobertson Miller Airline v C.S.T. (W.A.) (1975)

4. Promises Lackinq Content :a) e.g, "I'll pay you $10,000 in return for showing me natural love and affection"

(1) Can't be valued

b) “agreement to negotiate in good faith” - no value

5. Promises to do the Impermissible :a) ex. Pay money to someone for murder (or any illegal act)

6. Past Considerationa) A promise is made after an independently constituted and concluded transaction.

b) The Rule:(1) A past service (act) cannot support a present or future promise:(2) Roscorla v Thomas (1842)

(a) Horse sold by the defendant to the plaintiff; after the sale, the seller warranted that the horse was sound and free from vice(b) Turned out the horse was riddled with vices(c) Is the promise relating to quality legally enforceable? (d) Lord Denman made it clear that the original sale was simply a sale without a promise relating to quality. Such a promise (at that time) could not be implied as part of the original bargain. (e) The express promise of quality was made after the deal. Nothing by way of consideration supported this promise. It was, in essence, a gift promise - an extra promise thrown in by the seller after the deal was made. (f) It was supported only by a past consideration.

c) The Exception (non-statutory):(1) the act was done at the promisor’s request; (2) both parties understood that the act was ultimately to be paid for; and (3) payment would have been legally enforceable had it been promised in advance.(4) See:

d) In re Casey’s Patents [1892] (1) A & B, the joint owners of certain patents, wrote to C agreeing to give C 1/3 share of the patents(2) The promise to render future services is good consideration(3) Pre-cursor of Pao On's judgment

XII.Pao On v Lau Yiu Long [1980]

A. Facts:

1. Plaintiff's (Pao) owned private company, 'Shing On'; defendants (Lau) were majority shareholders in public company 'Fu Chip'

2. Entered into a main agreement whereby the Paos would sell their shares in the Shing On company to Fu Chip for $10.5 million, with the Paos receiving 4.2 million shares of $1 each in Fu Chip

3. Paos gave undertaking to Fu Chip that they would not sell/transfer 60% of the shares issued to them; important to Lau, heavy selling of Fu Chip sales could depress the market & Lau's shareholding value in Fu Chip

a) Agreement between Pao and Fu Chip

4. Lau guaranteed the Paos that if the shares dropped below $2.50 during the year in which the Paos could not sell, Lau would buy back the shares at $2.50 after one year

a) Subsidiary agreement signed whereby the Paos agreed to sell, and Lau agreed to buy, 2.5 million shares in Fu Chip at $2.50

b) Agreement between plaintiff (Pao) and defendants (Lau)

5. The guarantee against fall in value of the shares deprived the Paos of the advantage in taking shares as payment – that shares had the ability to rise in value when cash did not

6. When the Paos realized this, they refused to continue on with the main agreement until

the subsidiary agreement was re-written as a guarantee or indemnity

7. On May 4th the subsidiary agreement was cancelled and the parties signed a 'contract of guarantee”. The guarantee gave the Paos an indemnity against the price of the shares falling during the 12 month period, and guarantee the purchase of 60% of their shares at $2.50. The contract also contained a promise from the Paos to fulfill their earlier promises to Fu Chip

a) Agreement between plaintiff (Pao) and defendants (Lau)

8. The Fu Chip shares fell to 36 cents a share & the Paos exercised their rights under the guarantee; Lau refused to honour the guarantee

B. Issues

1. Did the written guarantee of May 4th provide sufficient consideration to support Lau's promise of indemnity? Was this past consideration?

C. Reasoning/decision

1. Defendants argued that the new subsidiary contract (the guarantee) was one of past consideration. The Board agreed with the plaintiffs that that the consideration was sufficient to support the Lau's indemnity. It was ruled that an act done before a promise can be good consideration if it satisfied three conditions: a) the act must have been done at the promisor's request, b) the parties understood that the act was to be remunerated, and c) the payment was legally enforceable

a) The promise made to Fu Chip under the main agreement not to sell had been made at Lau's request

b) The parties understood at the time of the main agreement that the restriction on selling must be compensated for by the guarantee against a drop in price

c) Such a guarantee was legally enforceable

D. Ratio

1. Existing duty is good consideration in a 3-party situation

E. Where two parties agree to an action, where a third party benefits from the action, is good consideration

1. Pre-existing Dutiesa) public/legal

b) contractual

2. RThe Rule:a) A promise to do (or refrain from doing) something that one is, by law, already bound to do (or refrain from doing) is of no value in the eye of the law (the new promise being indistinguishable from the old).

(1) ex. police officers aiding you in return of an offer for money; they are duty bound to help free of charge; no value

3. For a valid consideration, the promisee must EXCEED his or her existing duty.a) Public/Leqal Duties :

(1) Glasbrook Bros v Glamorgan C.C. [1925] (a) Glasbrook approached Glamorgan to provide police officers to protect mine workers during a strike(b) Glamorgan thought a mobile police force, driving by, would be sufficient; but mine manager wanted a police officer stationed there(c) Glamorgan wanted payment; manager said no because it was the duty of the police(d) Ruled that it exceeded their normal duty to have an officer stationed there; thus valid consideration – performance of more than their public duty

(2) Popiw v Popiw [1959](a) Husband promised his wife an interest in the home in return for coming home; she did but they eventually split up again; she sued(b) No problem showing intention, as they were living apart and the offer was in attempt to have her move back in(c) in exchange for his promise the husband obtained something more advantageous than the ‘right of cohabiting with his wife’ which he could not enforce(d) wife suffered a detriment by ‘placing herself in a position which she could not have been compelled to occupy’ (e) there was good consideration

b) Existinq Contractual Duties to the Promisor :

(1) Stilk v Myrick (1809 ) cf. (policy-based judgment)(a) 2 sailors had deserted their ship during a voyage(b) Captain couldn't find replacements so got the remaining crew and promised to divide the salary of the deserted members among the crew if they sailed home(c) Plaintiff was a crew-member who finished the voyage and sued the captain for the remaining funds(d) Ruled he was not bound to receive the funds as the plaintiff was already contractually bound to sail the ship home; he had not exceeded his duty

(2) Hartley v Ponsonby (1857) (a) duty exceeded(b) Another case of sailors deserting; but so many sailors deserted that it was ruled the remaining sailors exceeded their duty, thereby furnishing consideration

(3) Pao On v Lau Yiu Long [1980](a) Contrast the "2-party" rule with the "3- party" rule: a promise by A to perform a pre-existing contractual duty to B, in return for a promise by C, is good consideration for C’s promise.

c) North Ocean Shipping v Hyundai [1979] (1) This case involved a contract for the building of a tanker. The shipbuilder found that, because of a drop in the value of the US$ and because the contract had not made provision for currency fluctuations, they were facing a shortfall in what they were hoping to make out of the contract. So they demanded an extra US$3m approximately. (2) The buyer of the tanker reluctantly agreed to pay but under protest. The buyer already had a charter for the tanker and it was essential that it should be delivered on time. (3) When the tanker was eventually delivered, the buyer for some reason said nothing for some 8 months and then made a demand for the excess payment.(4) Note the seeming ease with which the courts can find (invent?) the modicum of consideration required to support a contractual promise (but be aware of duress).(5) Voidable because of “economic duress”(6) Void for lack of consideration (Stilk v Myrick)

d) Universe Tankships v ITWF [1983] (1) This is a case which involved industrial action by the International Transport Workers Federation. (2) They black banned a ship in order to induce the owners to accede to various demands being made by the union.

(a) One of the demands was for the employer to pay some money into the union’s welfare fund.

(3) The employer did pay the money to get the ban lifted but then brought an action later to recover the money, arguing that the payment was procured by duress. (4) The court will look to:

(a) the nature of the pressure, that is, the means used; and(b) the demand being made, that is, the end sought.

(5) in order to determine whether the pressure is acceptable or unacceptable. (6) For example if the pressure which is used is obviously unacceptable (such as holding a gun at someone’s head) then that is the end of the inquiry. (7) But if there is doubt about the means used then one has to look to the second element, namely, what it is that is being demanded.

e) Williams v Roffey Bros and Nicholls (Contractors) Ltd [1990] (1) Roffey was a contractor who was refurbishing a block of 27 flats. (2) Roffey entered into a lump sum sub-contract with Williams to do the carpentry work.(3) Before Williams completed the work he got into difficulties. He had quoted too low.(4) Roffey agreed to pay Williams more money. Williams continued to work and completed eight more flats. (5) Roffey made a payment but did not pay the full amount agreed to and Williams then stopped work. Some other carpenters completed the work. (6) The action involved a claim by the carpenter, Williams, for money not paid and a claim by the contractor, Roffey, for breach of contract.(7) what consideration does the carpenter provide in exchange for the promise of extra money?(8) three practical benefits:

(a) (i) ensuring that the carpenter keeps working; (b) (ii) avoiding the penalty for delay which the contractor Roffey faced if it did not get the flats completed on time;(c) (iii) avoiding the trouble and expense of having to find another carpenter to finish the job.

(9) Glidewell LJ rejected the argument that these practical benefits did not amount to a benefit in law.

(10) consideration was found in a "factual" or "practical" benefit to the promisor(11) the case is "pragmatic" but "hopelessly compromising of the doctrine of consideration"

XIII.ACCORD AND SATISFACTION1. The purchase of a release from an obligation (howsoever arising) by means of any valuable consideration, not being the actual performance of the obligation itself.

a) ie, accord and satisfaction is the acceptance by the plaintiff of something in place of his or her cause of action.

b) ex. accepting $1.00 and mowing your lawn for a year in lieu of original owing of $10,000 – purchase a release from that obligation

B. The Accord

1. the agreement by which the obligation is discharged.

C. The Satisfaction

1. the consideration that makes the agreement operative.

D. The Accord :

1. There must be a "true" accord (eg, no undue pressure or "disclaimer"):a) ex. force you to accept a lesser amount of $$ because you know the person has to accept it

2. D & C Builders v Rees [1966]a) Economic duress

b) D & C did some work on the Rees' property; bill came to $750, defendant paid $250 and had $500 owing

c) Plaintiffs said they wrote twice asking them to pay

d) Defendant was in bed sick and his wife called D & C complaining about the work and saying her husband will pay $300 to settle the debt

e) Wife knew the company was in dire financial straits and needed money now

f) Plaintiffs phoned back and said they could take $300 now and the rest in a year

g) Defendant's wife called back and said they would only pay $300

h) Plaintiff's accepted and added “in completion of the account” on the receipt at wife's insistence

i) Defendant's argued there was an accord when the plaintiff's agreed to take $300, and there was a satisfaction when the defendant's paid $300 and the cheque was honoured

j) Judge ruled there was no accord, the wife had held the plaintiff's unfairly for ransom/force them to accept

k) Economic duress

3. HBF Dalgety v Morton [1987]a) Defendant's had sold their property through the plaintiff Real Estate Agent; the seller was obligated to pay the real estate fees adopted by the real estate agency of New Zealand

b) Invoice sent to defendant's was for $9000+

c) Defendant's returned invoice with a note that his estimation of work done was $2450 and enclosed a cheque

d) Plaintiff's deposited the cheque and held that it was just a first payment and took action in court to recoup the remainder

e) Held that there was no accord and satisfaction(1) There was no clear offer; cashing the cheque does not equal acceptance; sent a disclaimer back to defendant saying it was not considered completion of agreement

f) No satisfaction – no real dispute over the bill, defendant gives up nothing, thus supplied no consideration

E. The Satisfaction :

1. = the bargained-for consideration (whereby the release is purchased)

F. The rule in Pinnel’s Case (1602):

1. "Payment of a lesser sum, in satisfaction of a greater, cannot be any satisfaction for the whole."

G. Foakes v Beer (1884)

1. The plaintiff, Beer, obtained judgment against the defendant for £2090. There is a statutory rule that judgment debts carry interest.

2. The defendant asked for time to pay, and the plaintiff agreed to accept payments on an installment basis. There was a dispute as to whether the plaintiff would then forgo the interest. After the judgment debt had been paid off, the plaintiff claimed the interest.

3. there must be consideration for the relinquishment of the balance of the debt (ie, the introduction, at the creditor’s request, of some new element)

H. HBF Dalgety v Morton [1987] (supra)

1. If a debt is a fixed amount, when it is not disputed, a payment of a lesser amount cannot be good consideration

I. Note, the rule in Pinnel’s Case will not apply if there is a GENUINE DISPUTE about the amount owing or the original claim is for an unliquidated sum.

J. COMPROMISE

1. Creditor surrenders a bona fide CLAIM OF RIGHT (there may be no cause of action).

K. FORBEARANCE

1. Creditor promises not to sue for a definite or indefinite period (there is a cause of action or substantive liability)

L. Note the public policy reasons for upholding compromise agreements.

M. In order for there to be a valid compromise, it is not necessary that the asserted claim be well-founded in law; BUT it must be done honestly (and possibly reasonably) made.

1. HBF Dalgety v Morton [1987] (above)

XIV.PROMISSORY ESTOPPEL

A. The Object of Estoppel:

1. To prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission that, unless the assumption were adhered to, would operate to that other’s detriment.

2. ie, the purpose of estoppel is to protect a person from the injurious consequences of reliance (in circumstances of "unconscionability") and not simply to enforce a gratuitous promise.

B. The key unifying theme or rationalisation of promissory estoppel is UNCONSClONABILITY (or equitable fraud).

C. Where some representation is made about future conduct, then this is either a promise or something very close to a promise.

D. The courts of equity said that in certain circumstances a person could not depart from such a statement about the future. In other words it was binding, despite there being no consideration.

E. Promissory estoppel was a concept which was recognised in a couple of 19th century cases but then it lay dormant until the High Trees case in which Denning J, then at the beginning of his judicial career, revived the doctrine and thereafter plugged it very hard in a number of English cases. The High Trees case became the best known case for many years.

F. Estoppel is an exception

G. The relevance of estoppel to this course?

1. estoppel is a gloss on contract.a) Gloss because it seems to undermine the rule of consideration

2. the main concern here is with gratuitous promises (ie, promises not supported by consideration), and the extent to which estoppel is a means, OUTSIDE of contract law, of enforcing such promises.

H. The Two Contexts of Estoppel:

1. PRE-EXISTING LEGAL RELATIONSHIPa) = “defensive” use (shield)

b) Prevents unconscientious insistence on strict legal rights

c) Generally SUSPENSORY only

d) A rule of evidence

2. Central London Property Trust v High Trees [1947]a) This was the famous case where Denning J as a young judge made his mark on the law of estoppel

b) The case represents the beginning of the modern revival of promissory estoppel.

c) A landlord said to a tenant that, during the course of the Second World War, the rent would be reduced.

d) The landlord company went into receivership.

e) The receiver noted that the reduced rent had been paid for some 5 years and demanded the arrears.

f) A test case was brought to see if the landlord's promise to reduce the rent was legally enforceable.

g) As a matter of consideration, of course, there was nothing moving from the tenant for the benefit of the landlord's promise

h) But Denning J relied on the Hughes and Birmingham cases to hold that the landlord was estopped from claiming the arrears of rent.

3. Some important features of this use of estoppel should be noted.a) It was used only in a limited sense. The landlord was estopped from insisting on its strict legal rights. The estoppel only applied to a negative promise of the sort "You need not perform the contract as written..." It has been said that estoppel can only be used as a shield and not as a sword. Denning J says that "the courts have not gone so far as to give a cause of action" based on estoppel.

b) The operation of promissory estoppel was also very limited in that it applied only to a suspension of existing contractual rights. It did not apply more generally.

c) The promisee must have acted on the promise. Here is the reliance element. It is the element which has given most trouble over the years. In later cases it has been said that the promisee must act to his or her detriment - detrimental reliance. This is difficult to find when the promisee has apparently only received a benefit, such as a reduction in rent.

d) The facts of the High Trees case itself show that the estoppel may only be temporary. It is quite in order for the landlord to re-establish the pre-existing contractual relation, that is, full rent by giving notice.

4. Combe v Combe [1951]a) Agreement between husband and wife, starting divorce proceedings

b) Husband promised wife an allowance of $100 per annum for maintenance, so that she wouldn't apply to the court for maintenance against him

c) They were divorced, but the annual payments were never made to the wife

d) The wife sued nearly seven years later, claiming 675l. in back payments.

e) A 'promise' (ie. 'a promise intended to be binding, intended to be acted on and in fact acted on') cannot give rise to a cause of action in damages for the breach of such a promise, primarily for want of consideration.

f) The High Trees principle is intended to "prevent a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties".

g) In this case, the plaintiff could not sue as a separate and independent cause of action regarding the defendant's breach of his promise to make allowance payments. The plaintiff could only succeed if there was a demonstration of sufficient consideration to support the promise.

5. NO PRE-EXISTING LEGAL RELATIONSHIPa) =”offensive” use (sword)

b) Assists in the creation of rights where none existed before

c) A cause of action

6. Waltons Stores v Maher (1988)a) Waltons, the erstwhile retailer owned by Mr Bond, wanted to build a store in Nowra on the South Coast of NSW. They found a suitable site owned by Maher.

b) It already had some buildings on it. They negotiated a deal whereby Maher would demolish the existing buildings and then erect a store to Waltons' specifications and would then lease the property to Waltons.

c) Waltons was in a hurry; they wanted the store erected by mid January 1984.

d) The contract was pretty well settled by early November 1983. On 7 November, some minor amendments were made to the contract. Waltons' solicitors in Sydney indicated that the final amendments looked OK to them but that they would have to clear them with the client, i.e. Waltons.

e) They said "We shall let you know tomorrow if any amendments are not agreed to."

f) Maher's solicitor, having heard nothing further, then got Maher to execute the contract and sent two counter-part contracts off to Sydney "by way of exchange".

g) Maher started to demolish the buildings on the site. Remember, Waltons was keen to have the building erected very quickly.

h) Meanwhile Waltons had a change of heart and asked their solicitors whether they had a contract with Maher yet.

i) When told that there had not yet been a completed exchange, Waltons instructed their solicitors to go slow on the deal.

j) Maher heard nothing from Waltons for some 9 or 10 weeks. He had demolished the buildings on the site, had completed about 70% of the brickwork and approximately two-fifths of the concrete work.

k) Waltons had a representative in Nowra and knew what was going on. Around about 20th January, Waltons' solicitors sent a letter to Maher saying that Waltons had decided not to go ahead with the deal.

l) Maher brought an action seeking a declaration that there was an existing contract, specific performance of that contract or, alternatively, damages. He won his case all the way to the High Court with not a single dissenting judge. The basis on which he won was estoppel.

m) In certain circumstances, if the facts are strong enough, you can actually use an estoppel argument to enforce someone else's argument – offensively

n) The breakthrough in the Waltons case was two-fold:(1) it allowed promissory estoppel to be used as a sword; and(2) it recognised promissory estoppel as a general principle which could operate in any circumstances of legal relations, not just existing contractual relations.

o) It is based on unconscionability. They say quite explicitly that merely breaking a promise is not by itself unconscionable conduct so as to support an estoppel. But breaking a promise does become unconscionable conduct when the promisee has sufficiently relied on it to his or her detriment. It appears from this passage that mere reliance by the promisee is still not enough. It must be a reliance that has been encouraged or generated by the promisor.

p) All of this was satisfied on the facts of this case. Mason and Wilson relied particularly on the background of urgency which had been generated by Waltons' desire to have the store built as quickly as possible. They also stressed that Maher had been encouraged to believe that exchange was a mere formality, that is, the failure of Waltons to get back to Maher meant that the last minute amendments were apparently OK and that the deal was going ahead.

q) This analysis leads to a most important point about estoppel and that is the remedies which flow from a successful estoppel argument. The remedies are tailored to achieve one aim: to avoid the detriment generated by the person who has reneged on a promise or denied the truth of a representation. This means that the remedy is limited and is determined by the particular circumstances. It just happens that in the Waltons case the only way to remove the detriment suffered by Maher as a result of his reliance on the assumption generated and encouraged by Waltons was to enforce the assumed contract.

Contract Estoppel

1. Depends on “agreement”

2. “consideration” required

3. Full enforcement of the terms as of right

1. “Agreement” unnecessary

P must hold an “assumption”

2. Detrimental reliance is required (not “bargained” for)

3. Enforcement of an “equity”

“minimum remedy to eliminate detriment”

I. The Elements of Promissory Estoppel

1. P holds an assumption or expectation as to the actual or proposed legal relationship between P and D.

2. D has induced P to adopt that assumption or expectation

3. the promise or assurance relied upon may be express or implied -- eg, "silence" -- and must be unequivocal

4. P acts or abstains from acting in reliance on the assumption or expectation (which reliance must be reasonable).

5. D knew or intended P to do so

6. P’s action or inaction will occasion definite and substantial (real) detriment if the assumption or expectation is not fulfilled

a) Protect the plaintiff from injurious conduct

7. D failed to act to avoid that detriment

Once unconscionable conduct is established, you have to establish detriment

J. On RELIANCE and DETRIMENT see:

1. Je Maintiendrai v Quaqlia (1981) a) For period of 18 months the rent on a property had been reduced. When P found out that D was about to vacate the premises, a claim was made for the full arrears. It was then a good case to test the doctrine of estoppel.

b) The court took the view that an estoppel could not operate unless the promisee had altered their position on the faith of the promise.

c) A person who makes a promise which is intended to be acted upon is not prevented from resiling from that position unless in doing so, it would result in some detriment or injustice.

d) Would entitlement to the full rent for the period elapsed work any injustice? [The argument here could easily go both ways - one could say that the tenant has had the use of the extra money and earned interest on it, so how could there be any detriment, compared - that is - to what otherwise would have been the case. On the other hand it could be argued that if the tenant thought that the difference was no longer due, then the money would be spent on other things, and to come back and ask for it now would mean that a debt had been building up without the tenant's knowledge and which could well be very difficult to pay off now.]

e) The court took the view that evidence re detriment was sparse - but would accept the judge's finding that accumulation of debt can be a problem. There was no doubt, however, that the promisor could revert to the original position re future payments upon giving due notice.

f) One of the judges took the view that detriment must not be speculative or conjectural but substantive. The evidence here failed to establish detriment. It is not established merely by the court speculating about possible alternatives and then attributing them to the party here.

g) By a majority, then, it was accepted that to ask now for the lump sum which was due, instead of periodic payments would give rise to undue hardship. The majority accepted that the doctrine of promissory estoppel was good, and part of the law of Australia

K. On REMEDY:

1. The remedies for promissory estoppel are discretionary and, in theory at least, dictated purely by the Court’s concern with the victim’s detriment.

2. As a general rule, the remedy in the context of estoppel will be PROPORTIONATE to the detriment suffered by the promisee in reliance on the promise, representation, or assurance.

3. (cf. Kirby P in Beaton v McDivitt, above)

L. There are two operations of estoppel at the remedial level:

1. Suspension and Termination of the Promisor’s Ri.qhts:a) eg, Hiqh Trees [1947] estoppel is suspensory only, holding rights in abeyance

b) the estoppel may become permanent (thereby terminating rights) only where:(1) a permanent abrogation is promised; and (2) the promisee’s detriment is such that it is impossible for him or her to resume his or her prior position.

2. Enforcement of "an Equity":a) Equity is flexible and will mould the remedy to suit the case.

b) BUT, in any event, the remedy is limited to eliminating the detriment(1) = the "minimum-equity-to-do- justice" approach.

3. Examples from the Case Law:

4. Riches v Hogben [1986] (later)

5. Waltons Stores v Maher (above)

6. Beaton v McDivitt (above)

7. therefore, a promise founding an estoppel is never directly enforced; rather, it is the promisee’s equity that is enforced (contrast contractual promises)

XV.FORMALITIES (Agreements Required to be Evidenced in Writing)

A. Note:

1. The common law does NOT require writing in relation to contracts; only certain statutes do; and then only in relation to particular kinds of contract

2. eg, where the agreement in question is a guarantee or concerns a sale or other disposition (say, a letting) of land or any interest in land.

B. Formality usually performs a protective function in contract law.

1. Protect from fraud

C. The Main Issues to be Considered Are:

1. The Statute of Frauds;

2. What constitutes compliance with the Statute of Frauds;

3. The effects of non-compliance with the Statute of Frauds; and

4. Ways of circumventing the effect(s) of non-compliance with the Statute of Frauds.

COMMON LAW EQUITY

Contract (defensive use only) Part performance

Restitution Estoppel

XVI. The Statute of Frauds

A. The Statute (of 1677) was originally passed to prevent:

1. Fraud;

2. Bogus claims based on parol (ie, oral) evidence; and

3. Perjury

B. The modern Queensland counterpart is:

1. s 59(1 ) of the Property Law Act 1974

2. NOTE:a) the section applies only to contracts, not to gratuitous promises or other non-contractual arrangements;

b) contractual "dealings" in land (or an interest in land) must be in writing (or evidenced by a writing) and signed "by the party to be charged".

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

1. 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.

XVII.Compliance with the Statute

A. The contract itself need not be in writing

1. an oral contract evidenced by a writing will suffice

2. PROVIDED the writing comes AFTER the contract.

B. An "exception" is a prior written and signed offer subsequently accepted orally (or by conduct or writing) by the plaintiff. (This is treated as a contract in writing, hence it is not really an exception.)

a) see: Haydon v McLeod (1901 ) (1) Haydon suing Mcleod on a contract relating to land(2) Contract said to have been made in the letters between the parties(3) Haydon said there was an oral contract evidenced in writing by the exchange of letters(4) Judge ruled the letters could not be written evidence as they came before the contract

C. While the writing may come after an oral contract is made, it must come before the action on it is commenced:

a) Popiw v Popiw [1959](1) Mr. Popiw argued the contract for land was oral(2) Mrs. Popiw said Mr. Popiw signed an affidavit agreeing(3) Judge ruled it came too late; have a window between oral contract being agreed to and the action taking place

D. The reason for the writing coming into being is irrelevant:a) Popiw v Popiw [1959]

XVIII.What must be “in writing”?

A. All ESSENTIAL and MATERIAL terms:

1. Parties adequately named or identified

2. Consideration stated; and

3. Subject matter described

B. All with sufficient particularity

C. The memorandum may comprise more than one document

1. “JOINDER” (or “linking up”) doctrine

2. Under this doctrine:a) There must be some reference, express or implied, to some other document or transaction

b) If so, then oral evidence may be given to identify the other document or transaction referred to; and

c) The reference must be in the document containing the signature of the party to be charged

D. See: Timmins v Moreland Street Property [1958]

1. The plaintiff alleged that by an oral agreement dated 20 July 1955 between him and the defendants, the defendants agreed to purchase a freehold property for £3900. On that day the defendants paid the agreed deposit by cheque, and received a receipt in the following terms: "Received of Moreland Street Property Co. Ltd .. the sum of £390 deposit for the purchase of [the property] (freehold), which I agree to sell at £3900... dated this 20th day of July, 1955, W.H. Timmins."

2. The property was subject to a lease of 42 years, most of which was still to run. The defendants were aware of this, but there was no mention of it in the receipt. The defendants stopped the cheque, and the plaintiff brought the present action for damages for breach of contract. The defendant raised the Statute of Frauds. The plaintiff relied on the cheque and receipt.

XIX.The Effect of Non-Compliance With the Statute of Frauds

A. The contract is unenforceable by action, but otherwise valid (not void or illegal)

1. ie, lack of writing is a procedural or technical deficiency and not a substantive one.

B. Because the contract is valid, it may be enforceable in ways other than by action, eg, as a defence to a claim by the other party

1. but, the courts will not allow enforcement of the agreement by way of counterclaim or defence:

2. Thomas v Brown (1876)

3. Perpetual Executors v Russell (1931)a) land which was legally owned by the trustee company as administrator of an estate was occupied by the defendant.

b) The defendant alleged that he was entitled to occupy the land under a lease granted to him by the deceased when he was still alive. This lease also included an option to purchase.

c) The defendant had tried to exercise the option to purchase but his efforts had been refused by the trustee company.

d) It was acknowledged that the defendant had a contract of lease plus an option to purchase but that there was no note or memorandum. It was also not possible to argue that the doctrine of part performance would apply to this case.

e) So, the position was that the defendant was in residence but had been unsuccessful in enforcing the option to purchase.

f) The plaintiff company was seeking to regain possession of the property. The defendant was seeking to retain possession of the property and to enforce the option.

g) The trial judge dismissed both claims.

h) The defendant could simply say that he was in possession under an executed

agreement and that the plaintiff could do nothing to recover the land. The parties were thus left in limbo, as Evatt J noted:

(1) "The parties remain between two worlds - one dead, the other powerless to be born..."

i) It was clear that the defendant could not enforce the option because there was no writing.

j) Who did the property belong to? The answer was: the plaintiff and so the High Court ordered that the plaintiff could recover the property.

k) The case illustrates that the idea of unenforceability is sometimes difficult to sort out, given that actual performance under an unenforceable contract is perfectly valid.

4. Head v Kelk (1963)a) The executor of an estate sought to recover money from the defendant which had been lent to him by the deceased.

b) The defendant argued that it was one of the terms of the loan that he would not have to pay it back if the lender died within 3 or 4 years. The lender did die within this time and so the defendant borrower said that he did not have to pay the money back.

c) The terms of the loan were not in writing.

d) It was argued that the defendant borrower could not rely on the terms of the contract because it was unenforceable for want of writing.

e) The defendant argued that he was not relying on the terms of the contract: the contract was executed, that is, the loan had been made. The plaintiff, if anyone, was trying to enforce the contract.

f) The court held that the defendant could not be made to pay back the money.

g) the defendant cannot do any better than if he or she had come to court as plaintiff the contract can only be used defensively ("in personam") and not to create an interest in the land ("in rem").

XX.Circumventing the Effect of Non-compliance with the Statute

A. FAIRNESS CONSIDERATIONS

B. RESTITUTION:

1. Where the contract is wholly or partly performed by one party, thereby conferring benefits on the other, non-conforming party (who accepts the benefits of the performance), the performing party is entitled to recover fair payment for his or her labours on the basis of a "quantum meruif’ (ie, a reasonable sum for work done).

2. Recovery is allowed because the action is not based on the contract but upon the notion of "restitution", in order to avoid unjust enrichment.

C. ENFORCEMENT IN EQUITY:

1. The Equitable Doctrine of Part Performancea) The doctrine is used to prevent the Statute of Frauds from itself being used as an instrument of fraud

(1) thus, the basis of the action is (equitable) "FRAUD" and not contract.

b) If a party refuses to sign the agreement and says there is no contract, Statute of Frauds will intervene

D. Regent v Millett

1. “What Regent v Millett therefore confirms is that acts of part performance are not confined to acts which the plaintiff is obliged to do under the contract, but may extend to acts which he is permitted to do under the contract. i.e. the exercise of a contractual right”

E. Regent v Millet (1976) HCA:1. Facts

a) The Regents are the parents of Millet; the Regents purchase a house

b) An oral agreement is made with their children, the Millets, that the children could pay off the mortgage, live in the house and have it transferred to them when the mortgage is fully repaid

c) The Millets went into possession, paid some money off the mortgage, performed repairs, and obtained another bank loan to cover the cost of some further repairs

d) Mr Regent now refuses to transfer title

e) He argues that taking possession and paying money in this manner is not unequivocally referable to the contract alleged by his children

2. Issue

a) Has there been part performance?

3. Reasoning

a) Taking possession, together with the expenditure of money has always been sufficient evidence of part performance

(1) The Court reviews the case law to reach this decision (2) It is not true to say that the payment of money could here be for any number of purposes (unlike Maddison)

b) Although the Court declines to consider the relevance of Steadman in Australia, it does redefine the McBride test

c) Acts must be unequivocally referable ‘to some contract’

d) However, it is sufficient that the contract is of the same general nature as that alleged

(1) Just needs to relate to the general nature of the oral agreement alleged to have been made(2) Need not refer to specific clauses of the agreement

e) ‘If a vendor permits a purchaser to take possession of land to which an oral contract of sale entitles him, the giving and taking of possession will be sufficient act of part performance, notwithstanding that under the contract the purchaser was entitled but not obliged to take possession’

4. Decision

a) The children are successful; the oral agreement is enforceable

F. The role of the doctrine is limited: its only function is as a substitute for compliance with the Statute of Frauds.

G. The doctrine works like this:

1. "Where the plaintiff establishes sufficient acts of part performance to justify equitable intervention, notwithstanding that the contract was merely oral, the defendant is ’charged’ upon the equities (or ’rights’) resulting from the acts done in execution of the contract, and not upon the contract itself."

H. The "equity" (or "right") that arises is to have the entire contract carried into execution on both sides (i.e. equity compels "specific performance" of the oral agreement).

I. Two problem areas:

1. How referable must the act(s) relied on be to the contract alleged?

2. The nature of the acts themselves (ie, how closely connected to actual performance must they be?)

J. The Required Characteristics of an Act of Part Performance:

1. The act must be done by or on behalf of or at the request of the plaintiff,

2. The act must be "a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract": mere preparatory or ancillary acts are insufficient

a) this is essentially what distinguishes "part performance" from "estoppel" (based on acts in detrimental reliance).

3. The acts relied upon must, individually or collectively, be sufficiently probative of the alleged contract:

a) When viewed independently of the oral contract, were the acts, "unequivocally, and in their own nature, referable to some such agreement as that alleged"?

b) Note how the test emphasises that the acts must be looked at in isolation from the evidence of the oral contract sought to be enforced

K. Riches v Hogben [1986]

1. the plaintiff, a man in his sixties with a wife and family of five young children, entered into an oral contract in England with his mother whereby the mother undertook to buy a house in Australia and put it in her son's name if he would, with his family, migrate to Australia with her and there live with and care for her.

2. To this end, the son gave up the rent-free council house in which he and his family were living, disposed of his household effects and car well below market value so as to meet the departure date, and with his wife, children and mother travelled to Australia at the mother's expense.

3. Upon arrival in Australia the mother did buy a house, but in her own name. She assured her son "it will still be your home albeit in my name", but, within only a few days of their moving in, the mother ordered her son, his wife and children to leave the house.

4. The son sued to enforce the contract with his mother, or otherwise fulfil his expectation.

5. The trial judge, McPherson J found thata) there was an intention to create legal relations and therefore a contract;

b) that it would not be enforceable under the doctrine of part performance if it was a contract within the Statute of Frauds but that, because it was a contract for future land, it was not within the Statute of Frauds;

c) that therefore it was enforceable as a contract;

d) if he was wrong, there was an enforceable obligation on the basis of proprietary estoppel quite apart from contract.

6. However, the Full Court found that the contract was within the Statute of Frauds and was unenforceable because of the strict test applied in connection with part performance.

a) Yet, said the Full Court, an equity arose in favour of the son under the doctrine of proprietary estoppel, entitling him to a conveyance of the house.

b) He had an expectation of acquiring an interest in land, which expectation was created and encouraged by his mother, and upon which expectation the son relied, altering his position so as to expose himself to loss if the expectation were not fulfilled.

XXI.Terms of the Contract

"Terms" give the contract its content (determine the extent of the rights and obligations created by the contract). R Note the "LIBERTY PRINCIPLE" ("freedom of contract"):

Contractual terms may beEXPRESSEDor IMPLIED.These are identified by looking at what the parties SAIDand WROTE.["TERMS"] versus["REPRESENTATIONS"]1.Subject to legality, the parties are generally free to enter into contracts onterms that suit them.2. The court’s role is a passive one: to interpret the terms proved and enforce

R embody contractual undertakings R enforceable in positive terms R promissory intention(guarantees truth or fulfillment of whatis asserted) R positive statement of past or existing fact only

R induces entry into thecontractthem.

M Two INQUIRIES:1. DISCOVERING THE TERMS CONTRACT ("IDENTIFICATION")OF THE

2.INTERPRETING THOSE TERMS: what do theymeanand what is their legal effect? ("CONSTRUCTION")

TERMS REPRESENTATIONS

Embody contractual undertakings Positive statement of past or existing fact only

Enforceable in positive terms Induces entry into the contract

Promissory intention

A. How do we determine promissory intention in this context?

1. OBJECTIVE TESTa) What would a reasonable, intelligent bystander infer from the parties' conduct and circumstances was intended?

b) “Much depends on the precise words that were used.”

2. Consider the following factors:a) Importance of the statement in the minds of the parties

b) Relative positions of the parties;

c) Proximity between the statement and entry into the contract, and

d) Reduction to writing

3. lllustrations from the case law: a) Oscar Chess Ltd v. Williams [1957]

(1) Williams sold his mother's car to Oscar Chess(2) Registration book showed car was first registered in 1948; 1948 Morris car(3) Oscar Chess agreed to pay $250

b) JJ Savage & Sons v. Blakney (1970)

XXII.THE PAROL EVIDENCE RULE1. The "rule".:

a) "Where a contract is fully integrated, evidence beyond the contract cannot be relied on or admitted for the purpose of adding a term or altering the meaning expressed by the words in the document."

2. lllustration:a) State Railway Authority (NSW) v. Heath Outdoor Pty Ltd (1986)

(1) Heath had entered a contract with the railway to advertise on fences that were owned by the railway (2) Contract contained an unrestricted termination of contract term with one month's notice in favour of the defendant's (railway)

3. If I've made an oral promise to you...a) 3 scenarios

(1) Written contract (full integration) + oral promise (a) Met by Parol Evidence rule – cannot prove oral promise because it is not written; parol evidence rule prevents outside evidence

(2) Partially integrated contract with both written and oral – parol evidence rule does not apply because the evidence is not outside the contract

B. Notes

1. “Fully integrated” the rule only applies where the document is intended or recognized by the parties to comprise the entire agreement between them

2. “Beyond the contract ” refers to extrinsic or parol (oral) evidence of the words or acts of the parties before or after the contract was constituted

3. “Adding a term” the rule applies in the context of identifying contractual terms

4. “Altering the meaning” the rules also applies in the context of construing the contractual terms (infra)

5. “The rule does not apply to oral terms where the contract is only “partially integrated” (I.e partly written, partly oral)

C. Illustrations.:

1. Couchman v. HilI [1947]

2. J Evans & Son v. Andrea Merzario [1976]

D. Note that extrinsic or parol evidence is admissible for purposes other than "adding to, varying, or contradicting" the written contract --

1. For example:a) misrepresentation as to the content or legal effect of the written contract

b) mistake (non est factum; rectification)

c) estoppel

d) Collateral contract (1) 2 contracts: main contract usually in writing, and a separate collateral contract that stands alongside it(2) Collateral contract = A contract, consideration for which is entering into the main contract

2. Each of these exists under a separate doctrine not touched by the parol evidence rule.a) E.g. collateral contracts

(1) Extrinsic evidence is admitted because it is not being used to vary the terms of the main contract; rather it is being used for the purpose of establishing another contract (2) = a “lawyer's device”(3) Have to prove a promise was made, have to prove there was consideration to enter into the main contract, and that there was consistency between the collateral and main contract

3. Illustrations a) Shepperd v Ryde Corporation (1952)

(1) Shepperd was buying a house from the local council. (2) The council said in a pamphlet that parkland near the house which Shepperd was proposing to buy would remain as parkland. This was obviously an attractive feature and Shepperd went ahead with the purchase. (3) The contract of sale made no mention of parkland. (4) The council later wished to build on the parkland and Shepperd sought an injunction to stop it. (5) The argument was that there was a collateral promise concerning the park land and this had induced Shepperd to sign the sale agreement.(6) The High Court was prepared to accept this argument, stressing that the heavy onus of establishing a collateral contract is more easily discharged when the subject-matter of the alleged collateral contract is something quite separate from the main agreement and which you would not expect to find in the main agreement.(7) Successful collateral contract

b) Hoyt's Pty Ltd v Spencer (1919)(1) In Hoyt's, on the other hand, the alleged extra promise was a modification to the main contract. (2) This was a contract of lease under which the landlord reserved the right to terminate on 4 weeks' notice. The landlord did give notice under this clause. (3) The tenant, Hoyt's, argued that the landlord had said before the lease was executed that he would not use this clause to terminate the lease except in certain defined circumstances.

(4) Hoyt's argued that these circumstances had not arisen and that therefore the landlord was in breach of this promise not to exercise his right to terminate under the clause.(5) The High Court held that an alleged collateral contract cannot operate when it contradicts the main agreement. (6) The reasoning of Isaacs J was that if the main contract is the consideration for the collateral contract, then it is logically impossible for the collateral contract to detract from that consideration. (7) The person wishing to rely on the collateral contract has by definition agreed to the main contract. Isaacs J states simply that he or she must have agreed to the main contract in its entirety.

XXIII.Incorporated TermsSigned contracts Unsigned contracts

Generally do not require notice Depend on the party sought to be bound having sufficient notice of the contractual terms

A. Exception clauses

1. Did the clause become part of the contract?a) The “Incorporation” rules”

(1) Did P “assent” to the clause? Signature + notice & acceptance

2. If so, does it cover the event that occurred?a) The “Construction” principles

(1) Breach of contract (liability might be strict)(2) Tort (negligence)(3) Unauthorised conduct or criminal actions

B. Signed Contractual Documents

1. The Effect of Signature

2. L "Estrange v. F Graucob Ltd [1934] a) facts involved the purchase of a cigarette vending machine.

b) The purchaser signed a form which contained a sweeping exemption clause. The machine did not work properly.

c) The trial judge felt sorry for Mrs L'Estrange and said that the form was printed in too small type and that the drastic exemption had not be drawn to her attention.

d) The Divisional Court held that the purchaser had no remedy because she had signed the document with the exemption clause in it.

3. The usual rule is that a party is bound by his or her signature to a contractual document, regardless of whether that document has been read or not

a) = objective assent to the terms of the document

4. Nalder & Biddle v C & F Fishing [2005] a) Plaintiff had agreed to refit a vessel owned by the defendant

b) There was no comprehensive contractual document that recorded the parties arrangements; only a written proposal with a brief description of the work to be done, and a 3 page document described as 'terms and conditions of trade for business customers international' – included many limited liability clauses in favour of the plaintiff

c) But the 3 page document was never signed, but a series of cards were signed by the plaintiff, many of which contained the declaration that the defendant agreed to the terms and limits of liability set out by the plaintiff

d) Court ruled that the cards were not contractual documents – their function was not to evidence the contract, only particular jobs/authorise the start of particular jobs

(1) They related to the contract, but were not contractual documents

5. The rule does not apply in exceptional circumstances: for example, misrepresentation, non est factum, and "surprise" terms

a) each of these circumstances seriously weakens the inferences that a reasonable

person could otherwise draw from the act of signature alone.

C. Misrepresentation as to Contents

1. Curtis v. Chemical Cleaning and Dyeing Co Ltd [1951]a) Mrs Curtis took her wedding dress to be dry cleaned. She was asked to sign a receipt.

b) Mrs Curtis, like the farmer in Couchman v Hill, was an enquiring sort of person and wanted to know why she had to sign the receipt.

c) She was told that the dry cleaners would not accept certain risks and the dry cleaning person specifically mentioned the beads and sequins on the wedding dress as being something which the dry cleaners could not take responsibility for.

d) Mrs Curtis then signed.

e) In fact the exclusion clause was very wide-ranging and covered much else besides the beads and sequins being damaged.

f) When Mrs Curtis went to recover her wedding dress the beads and sequins were fine. There was, however, a stain on the dress.

g) She complained and the dry cleaners pointed to the clause which she had signed which was perfectly general and covered any type of damage. She sued them for damages.

h) The trial judge found in her favour, saying that the shop assistant had misled Mrs Curtis about the scope of the exclusion clause and that the dry cleaners could only rely on the clause as it was represented not as it actually was.

i) In the English Court of Appeal the same analysis was adopted by Lord Denning. He makes the point that the dry cleaners had innocently misled Mrs Curtis and that they could only rely on the exclusion clause in relation to damage to the beads and sequins but not in relation to other types of damage.

j) Lord Denning actually goes further and says that the company might not have been able to rely on the clause even if Mrs Curtis had signed without asking any question.

(1) Receipt had no contractual terms

D. "Surprise" Terms

1. Despite the general "signature" rule above, specific notice may have to be given where the document presented for signing contains onerous terms or terms that are not reasonably to be expected in the transaction in question.

2. Tilden Rent-a-Car Co v. Clendenning (1978) (Ontario)a) Clendenning rented a car from Tilden Rent-A-Car. He signed the rental agreement which contained an exclusion clause denying coverage for accidents that occur if the driver had consumed any alcohol.

b) Later, Clendenning hit a pole after having consumed alcohol. He pleaded guilty to impaired driving and tried to collect from the insurance policy to pay for the damages of his accident.

c) Court ruled it was inconsistent with the overall object of the contract; simply signing a document that contains outrageous clauses when the person knows the signer has not read those clauses, is not sufficient

3. Toll (FGCT) Pty Ltd v. Alphapharm Pty Ltd (2004)a) Toll had been engaged to transport a shipment of influenza vaccine, but the goods were damaged through exposure to wrong temperatures, either in storage or during transport.

b) Toll relied on a clause of the contract by which it excluded its liability for any loss or damage.

c) Alphapharm successfully sued Toll in the District Court of New South Wales and obtained judgment for $683,061.86.

d) Toll appealed unsuccessfully to the New South Wales Court of Appeal. Toll then appealed to the High Court of Australia.

e) The Court allowed Toll's appeal and affirmed the general rule that where a person who signs a document which is known by that person to contain contractual terms, and to affect

legal relations, they will be bound by those terms, and it is immaterial that the person has not read the document.

f) The Court held that the general rule would apply in the absence of any vitiating element, or any claim for equitable or statutory relief.

XXIV.Unsigned Contractual Documents

A. Incorporation by Notice: Displayed or Delivered Terms

1. Summary of the Principles:a) Where a party accepts without objection a document that she knows, or ought reasonably to know, contains writing intended by the proferror of the document to govern or affect the parties’ contractual relationship, that party will ordinarily be prevented from denying his or her assent to be bound by the writing, notwithstanding a failure actually to read what the writing says, because that is what a reasonable person observing the parties’ dealing would be entitled to infer

2. Where the document in question:a) is not reasonably recognizable as a contractual document; or although contractual in nature, contains particularly onerous terms, or terms that are unusual for the type of transaction in question,

b) the proferror will need to take extra, positive steps in order to discharge the onus, which is on him or her, to show that such terms have been incorporated into the parties’ agreement because reasonable notice has been given in the circumstances.

c) Chapelton v. Barry UDC [1940] (1) council provided deck chairs on beach(2) beside stacked chairs, notice read: “Barry Urban District Council. Cold Knap. Hire of chairs. 2d. per session of 3 hours.”(3) appellant received two chairs from the attendant and, upon payment of the fee, two tickets(4) On the back of tickets: “… The Council will not be liable for any accident or damage arising from hire of chair.”(5) chair gave way and appellant was injured(6) court ruled ticket issued too late(7) appellant entitled to assume all conditions of hire were on notice near the stack of chairs(8) thus was not bound by the condition printed on the back of the ticket and was entitled to recover damages in respect of his injuries.(9) The ticket was merely a receipt, did not contain contractual terms

3. Where presentation of the document occurs after the contract is made, the recipient is generally entitled to infer that the document is not a contractual document, but rather a mere receipt for money paid or a voucher for goods deposited.

4. In any case, adequacy of notice is a fact-specific inquiry.a) Parker v. South East Railway Co (1877)

(1) a "ticket" case (2) The plaintiff deposited a bag at a railway station cloakroom. He was given a ticket. When he came back to reclaim it they had lost it. They claimed to be protected by an exclusion clause on the ticket.(3) note "offer and acceptance" analysis (4) low standard of"sufficiency" or "reasonableness" of notice

(a) If plaintiff doesn’t see writing or know of writing, terms are not binding ( = an evidential matter).(b) If plaintiff knew of writing, and knew or believed it included terms, the terms are binding. (c) If plaintiff knew of writing, but did not know or believe it included terms, plaintiff is bound if proferror did what was reasonably sufficient to give notice of the existence of the terms.

5. The terms must be presented before the contract is made:a) Thornton v. Shoe Lane Parking Ltd [1971]

(1) Entering into a parking garage, a patron paid his money into an automatic teller and out came a ticket. Although the patron did not notice it, the ticket contained a notice "This ticket is issued subject to the conditions of issue as displayed on the premises." There was also a notice board outside that read "All cars parked at owners risk."

(2) The judge decided that the liability exemption condition did not apply because the contract was concluded when the patron put his money into the machine.(3) "The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late (the patron having already paid). The contract has already been made."

6. What counts as “reasonable” notice is relative to the clause sought to bind the plaintiff:a) The more exceptional, unusual, outlandish, or unreasonable the clause, or the wider the liability sought to be excluded, the more the defendant will have to do to bring its existence fairly to the notice of the plaintiff (eg, have a "big red hand" pointing to it).

(1) J Spurling Ltd v. Bradshaw [1956] (a) Eight orange juice casks belonging to Bradshaw were stored with Spurling, who had a no-liability clause inserted into the contract of warehousing including that all risks were assumed by Bradshaw. (b) When the goods were handed over to Bradshaw's agent, it was discovered that contents of three of the casks were damaged. (c) The judge said that a liability exemption clause will not operate to excuse a fundamental ("radical; a breach which goes to the root of (the contract)") breach of the contract.(d) But this case did not merit any "exceptional treatment" as it had been adequately brought to the attention of Bradshaw. The court was also impressed with the fact that Bradshaw did not complain of the condition throughout the eight months of storage and during which he made the monthly payments.

(2) Thornton v. Shoe Lane (above) (3) Nalder & Biddle v. C & F Fishing (above)

b) This applies to onerous clauses in general, and not just to exception or limitation clauses:

(1) Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989](a) A photo company lent 47 pictures to a design company. (b) In little letters, the document which accompanied the photos said that the recipient would have to pay £5 a day per picture if the pictures were not returned after 14 days.(c) The design company officer phoned the photo company when he received the photos and indicated that he was interested in several of the photos. (d) The pictures were then returned several weeks later and the photo company sued for £3,783, which worked out to be £5 per picture per day that the photos were retained past the 14-day viewing period. (e) This appeared to the court to be an extravagant penalty clause

(i) "If one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that the particular condition was fairly brought to the attention of the other party. In the present case, nothing was done by the plaintiff to draw the defendant's attention particularly to (the) condition."

B. Incorporation by "Prior Dealings"

1. A sufficiently long and frequent course of consistent dealing between the parties can cure, or substitute for, the lack of sufficient notice that would exist if the transaction were a single one.

a) Spurling Ltd v. Bradshaw (above)

b) Nalder & Biddle (above)

c) McCutcheon v. David MacBrayne Ltd (1964)(1) The respondent shipped goods from the Isle of Islay and the appellants were using his services to ship a car when the vessel hit rock and sank(2) The appellants had used the services before and had always signed a document of conditions, removing liability from MacBrayne, although they said the conditions were too long and they had never bothered to read them(3) This particular time with the car, the respondents had not got signatures from the appellants(4) It was held that there was no contract because the terms of the contract were not communicated to the appellants – either expressly or impliedly

(a) “you cannot have a contract subject to uncommunicated conditions the terms of which are only known to one side”

(5) The respondents in this case failed to prove the appellants made himself aware of the conditions that had been incorporated into previous dealings(6) The conditions cannot be brought into a contract other than by “expression, incorporation, or implication”; they are not brought into it simply by being a part of past transactions involving the appellants(7) There is no contractual document at all - “it is as if the appellant had been accepted as passenger without being given a ticket at all”

d) Hardwick Game Farm v. SAPPA [1966](1) Plaintiff sold quantities of Brazilian ground nuts to the defendant; an oral contract with “sold notes” issued to the defendant after each purchase; (2) Sold notes included a 'clause 9' dealing with liability for latent defects in the goods & plaintiff alleged that the clause was part of the contract (3) Defendants claimed they knew the terms existed but had never read them (4) When parties have entered into an oral contract with the intention of creating legal relations/liabilities, and sought to rely on a term contained in some written document to modify the rights and liabilities of the parties, the question is whether the each party has led the other reasonably to believe that the rights and liabilities had been modified by the written document(5) The issue of sold notes containing 'conditions of sale' during each prior transaction should have led the defendant to 'reasonably to believe' that the plaintiff was willing to sell the goods only on the terms of the 'conditions of sale'(6) By accepting the sold notes and not making any comments/asking any questions about the 'conditions of sale', it would lead the plaintiff to reasonably believe the defendant was accepting those terms

C. The test is OBJECTIVE:

1. "What would a reasonable bystander infer from the recipient’s failure to object at any time during the course of dealing?"

2. The parties’ dealings must be consistent (habitual or customary both in form and substance) …

a) and sufficiently frequent and long

D. IMPLIED TERMS

1. Implied terms are non-express terms that are "read in" to the parties’ contract.a) An important function of them is to fill in gaps that the parties have left in the contract.

2. Implied terms can be implied by:a) custom or practice of the parties or their trade;

b) in contracts of a particular type or class;

c) by statute; or

d) in particular or unique contracts: (1) deduction from the express terms (construction);(2) to give "business efficacy" to the contract.

3. Often it is difficult to see distinctness among the above: "shade(s) on a continuous spectrum"

XXV.Interpretation of Contractual (Express) Terms1. Refers to the process of ascertaining the meaning and legal effect of contractual words

a) “construction” - the legal means by which the intention of the parties is determined

2. The Traditional Approach:a) Objectively, what did the parties agree to?

(1) (May in theory thwart their actual intentions or produce a result that neither party intended.)

B. EXCEPTION CLAUSES: A Case Study in Interpretation

1. "Exception clause" is the generic label lawyers use to describe a clause that excludes, qualifies, or limits the liability of a party for breach of contract (or any other legal wrong) on his or her part.

2. Did the parties intend the clause to protect D in the circumstances that occurred?a) They vary in nature, scope, and purport:

(1) total exclusions (substantive; defence to breach of contract; assists to define primary rights and obligations)

(2) qualify or restrict liability (procedural only; eg, limitations on time frame)(3) limitation of liability (procedural only; provide a mere shield against liability in damages; qualify secondary obligations)

3. Recurrent themes a) “Freedom of contract” vs “Unfair” contractual terms

b) “Commercial” contexts vs “”Consumer” ones

C. Construction at Common Law

1. Exception clauses are not construed as strictly today as in the past

2. In all cases (but subject to statute) the efficacy of an exception clause is fundamentally a matter of construction (i.e. the parties' demonstrated intentions)

3. Provided that intention is CLEAR, one can at common law (subject, of course, to the principle of mutuality) exclude anything one likes, even if it defeats the “main object” of the contract itself

4. A rule of strict but not hostile or strained, construction applies

5. Darlington Futures Ltd v. Delco Australia Pty Ltd (1986) [via SGS (NZ) Ltd v. Quirke Export Ltd [1988]]

a) The Darlington case involved a contract between a broker who invested on the futures market and an investor. The High Court upheld an exclusion clause which had very wide operation and protected the broker from the consequences of engaging in transactions which had not been authorised by the investor.

b) In Australia the courts have always approached exclusion clauses as a matter of construction, albeit with a bias against the clause, that is, applying the contra proferentem rule. The construction approach (viz. does this clause by its words cover this event or this cause of action?) is stressed as the correct approach by the High Court in Darlington. Note that in stressing this approach the High Court puts in the qualification at the very end of the 1st para on page 709 that they are talking about "formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises..." This is a reference to a different, more protective, approach which would be adopted in consumer-type transactions.

6. The principles of construction of exception clauses "do no more than express the general approach to the interpretation of contracts."

7. Such clauses are construed according to "natural and ordinary meaning"a) look at the contract as a whole;

b) give due weight to the context in which the clause appears;

c) look at nature and object of contract.

8. No distinction is drawn among the various types of exempting provision -- the principles of construction apply uniformly (but compare SGS (NZ) Ltd v. Quirke Export)

9. No question of "fairness" or "reasonableness" arises in formal commercial contracts between business people.

10. Some established rules (of thumb) a) where appropriate, exception clauses are construed strictly against the proferens;

b) they have no application to negligence unless they clearly, expressly or impliedly, cover such liability; and

c) the clarity of the clause is relative to the seriousness of the breach sought to be excluded.

(1) The more you're trying to exclude, the clearer you have to be

D. The "Contra Preferentem” Rule:

1. works to construe an exception clause against the party relying on it

2. applies only in the case of ambiguity (not automatically)a) = "a rule of last resort"

3. operates to remove doubts, not to create them!

4. Wallis v. Pratt [1911] a) the defendants sold seeds to the plaintiffs which they described as ‘common English sanfoin’.

b) It was an express term of the contract that ‘the seller gives no warranty express or implied as to growth, description or any other matter’.

c) The seeds supplied by the defendants were not ‘common English sanfoin’ but ‘giant sanfoins’. ‘Giant sanfoins’ being inferior seeds and different to the seeds contracted for, the plaintiffs sued for damages.

d) The defendants tried to rely on the exclusion clause.

e) However, the Court held that the exclusion clause did not apply to the breach of a condition, rather it applied to the breach of a warranty.

f) And it was definite that what had been breached was a condition as was implied under section 13 of the Sale of Goods Act 1893 (UK) that goods would correspond to description.

g) The clause will be read 'contra preferentum'

5. SGS (NZ) Ltd v. Quirke Export Ltd [1988] a) SGS issued a certificate guaranteeing onions of a particular size without checking the onions

b) excluded negligence to gross and liability to 10 times fee

c) Quirke argued exclusion covered only typing-like mistakes in document, not a failure to examine

d) Held: (1) Torture to construe clause that way (2) Plain meaning: “in no case”, therefore limited liability

E. Excluding Liability for Negligence:a) clear words/intention are necessary to exclude liability for negligence

F. There are three rules (of thumb) : (from Canada SS Lines Ltd v. R [1952]).

1. An express exclusion of liability for negligence will be effective.

2. Even if there is no express reference, the clause will be effective if, as a matter of construction, that was the parties’ intention.

a) E.g.:(1) "all liability, whatever its cause" (2) "any loss, howsoever occasioned" or (3) where the defendant’s liability can only rest on negligence

b) Davis v. Pearce Parking Station Pty Ltd (1954) (a bailee is not liable apart from negligence)

(1) An exemption clause will NOT apply where the loss or damage results from conduct that is not authorised or permitted by the contract (2) For negligence by a contract breaker to be within the scope of an EC it is clear that it must be clearly intended that the clause covers negligence

3. Even if the words are wide enough, they will not be effective if the plaintiff can show that his or her claim could be based on some other head of liability than negligence (eg, strict liability for breach of contract)

(1) White v. John Warrick & Co. [1953](a) White hired a tricycle from John Warwick.(b) The agreement included a clause which read: ‘Nothing in this agreement shall render the owners liable for any personal injury.’(c) White was injured when the saddle of the bicycle tilted.(d) The Court of Appeal held that John Warwick owed concurrent duties in contract and tort

to the plaintiff.(e) The clause excluded the contractual duty but not the common law duty of care in tort

b) If there are two possible heads of liability, the exception clause will be construed (as far as possible) as exempting the defendant from strict liability but not negligence

(1) cf. Davis v. Pearce Parking (above) (co-extensive liability)

c) Consider also:

d) Livingstone v. Roskilly [1992](1) Thomas J took a stricter approach: inherently ambiguous.What does the phrase 'All care: no responsibility' mean in a contract for the storage of goods?(2) Although every precaution will be taken the goods are now at the owner's risk, so liability where there is fault or negligence is excluded. Or:(3) Every precaution will be taken and otherwise the goods are at the owner's risk, so excluding liability only where there is a fault.(4) Concluded words ought to be construed in the second sense and that they could not be taken to negate the garage's obligation to care. (5) Thomas J held that the correct approach was to construe the contract as a whole, in order to determine the parties' intentions with respect to their positive obligations and the exclusion clause. The question was whether the parties intended to exclude the defendant from liability for failing to perform, or negligently performing, what the defendant had otherwise undertaken to do under the contract. Only if the contract as a whole confirmed that an exclusion clause was intended to operate on this basis, it could do so.(6) No liability, apart from negligence for the garage to exclude, as in Hollier, so the result of Thomas J's reasoning was that 'no responsibility' meant nothing at all(7) strict approach.

e) Shipbuilders Ltd v. Benson [1992](1) Differs from Roskilly case, as there was a reference to insurance responsibility separate from responsibility for storage

G. Seriousness of the Breach

1. the more serious the breach sought to be excluded, the less likely it is that the parties intended the exclusion to protect the defendant

2. it is a matter of construction whether or not the clause extends to liability for "fundamental breach":

a) ie, there is no rule of law automatically negating the efficacy of exception clauses to "fundamental breaches", e.g., breaches that:

(1) cause performance to become radically different from that contemplated under the contract;(2) substantially deprive the plaintiff of the benefits that he or she was to enjoy under the contract; or(3) Radically deviate from performance of the contract so as to alter the nature of the risks involved

3. Photo Production Ltd v. Securicor Transport Ltd [1980]a) A security guard deliberately threw a match but not with the intent that a fire be created, which destroyed part of Photo Production's building.

b) The security agreement included an exclusion clause to the effect that "under no circumstances shall the company (Securicor) be responsible for any injurious act or default by any employee of the company."

c) The invalidity of exclusion clauses where a fundamental breach had occurred was discarded.

d) Instead, exemption clauses are to be construed by the same rules of contract interpretation on whether or not a fundamental breach had occurred or not.

e) Whether or not liability was excluded was to be decided simply on the construction of the contract. The court found the clause to be quite clear and unambiguous and found that it precluded the liability of the security company

f) This case makes it clear that, provided the parties’ intentions are clear, liability for fundamental breach can be excluded. Parties are free to apportion risk as they see fit

g) courts are not mandated to re-write contracts or to disturb the allocation of risks voluntarily assumed by the parties.

4. Sydney City Council v. West (1965) a) the "four corners rule"

b) Plaintiff parked car in defendant's carpark facility; received ticket with 3 clauses, one of which was a general exemption clause

c) When plaintiff went to retrieve car, defendant had given car to a thief who had convinced employee that he was the owner of car (printed off duplicate ticket for him)

d) Plaintiff sued the defendant and won

e) it is all a matter of construing the contract. This involves asking whether the words cover the particular event.

f) In this case, they spent no time looking at the words themselves but, instead, just said that they could not possibly have been meant to apply to the delivery of the vehicle to the wrong person. This was something which was not authorised or permitted by the contract.

g) Had the car park attendant been merely negligent in carrying out the contract then the car park would have been protected. But this was something else.

5. TNT (Melbourne) v. May & Baker (Australia) (1966) a) the "deviation rule"

b) Baker contracted with TNT to carry Baker's goods. TNT subcontracted some of the work to a 3rd party; 3rd party could not make it to the location to drop off and so stored the goods overnight in his garage; the garage burned down overnight causing $8000+ loss

c) TNT sought to rely on an exclusion clause in the contract that exempted liability for loss or damage or misdelivery of goods in transit or storage

d) Majority held: the exclusion clause does not protect TNT(1) The subcontractor performed obligations in an unauthorised way(2) Limiting terms are subject to the four corners rule: liability for activities that fall outside conduct authorised in the contract cannot be excluded by a contractual term

e) Applying the 'four corners rule', because liability for unauthorised conduct cannot be excluded, the exclusion clauses cannot be effective to exempt liability for P's unauthorised conduct

XXVI.The Classification of Contractual Terms

A. Traditionally contractual terms are classed by their relative importance

B. The significance of such classification bears on the rights that the innocent party may enjoy upon the other party’s breach of contract.

C. A recent discussion of the classification of contractual terms can be found in Koompahtoo Local Aboriginal Land Council v. Sanpine Pty Ltd (2007) 233 CLR 115 (HCA), where the majority of the Court (note Kirby J’s dissenting view below) confirmed the UK tripartite classification of terms:

D. “Conditions”

1. These are "essential" or "vital" contractual terms, the slightest breach of which gives a right of termination forthwith, as well as a right to damages.

a) A condition is a term of the contract that goes "so directly to the substance of the contract or [is] so ’essential to its very nature that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all’. The breach of such a term by one party entitles the other party not only to obtain damages but also to refuse to perform any of the obligations resting upon him." (Tramways Advertising Ltd v. Luna Park (1938) 61 CLR 286 at 302 per Latham CJ (HCA))

2. Except where it is one implied in law (eg, under Sales of Goods legislation), a condition is a term agreed by the parties to be "essential" to the promisee.

3. Conditions (ie, "essentiality") may be express or else implied as a matter of construction in the circumstances

4. Implied essentiality depends on the "objective importance" of the term in question:a) "It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and ... the commercial purpose it serve[s], that determines whether a term is ’essential’, so that any breach will justify termination."

Koompahtoo at [48] per the majority

5. "The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be and that this ought to have been apparent to the promisor."

Tramways (1938) 38 SR (NSW) 632 at 641-642 per Jordan CJ (NSWCA)

a) Consider:(1) the promisee’s motivation for entry into the contract;(2) the structure of the term and the contract; (3) the likely consequences of the breach;(4) assessment of damages and reasonableness; and (5) the nature of the term, subject matter, and contract.

6. Illustrations:a) Luna Park (NSW) Ltd v. Tramways Advertising Pty Ltd (1938)

(1) where Jordan CJ attempted to define what is meant by "condition". (2) He made the point that the parties may expressly stipulate in the contract whether a term is essential in the sense that any breach of it, even a trivial breach, will justify termination.(3) But if the contract is not explicit, then it is a matter of construction by reference to the presumed intention of the parties. (4) This is amply demonstrated by the facts of this case. There was a clause which provided that boards advertising the joys of Luna Park would be "on the tracks at least eight hours a day throughout the season". It was established in evidence that the boards were on the tracks for an average of eight hours a day but that each board was not necessarily on the tracks for eight hours each day. The questions were

(a) Was this a breach at all? (b) If it was, was it a breach that justified termination, that is, was it a breach of "condition"?

(5) The answers to these questions went back and forth as the case progressed through the court system. In the end a majority in the High Court said that there was a breach and that it was an essential breach which justified termination(6) “It was a term of the contract which went so directly to the substance of the contract or was so 'essential to its very nature that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all.' The breach of such a term by one party entitles the other party not only to obtain damages but also to refuse to perform any of the obligations resting upon him.

b) Associated Newspapers Ltd v. Bancks (1951)(1) Bancks agreed to provide a drawing for a comic strip, and Associated Newspapers agreed to publish it on the front page of the comic section of the paper. (2) Associated Newspapers subsequently sought an injunction to prevent Bancks from breaching the employment contract which had been made for a period of 10 years. (3) On 3 occasions, the comic was printed on page 3, and Bancks protested. After the third occasion, he informed Associated Newspapers that the contract was terminated, and he then signed a contract with another newspaper. (4) HELD: Bancks was justified in thinking that the breaches would continue, and was therefore justified in rescinding the contract. (5) The court asked, was the “front page” term a condition or an essential term, a breach of which would allow the party to rescind the contract and sue for damages? Or was it only a subsidiary term entitling only to damages? (6) In London Street Tramways, the court said that the term should be such that if the promisee were not assured of strict or substantial performance, then he would not have entered into the contract. It would be strange if the obligation of Bancks were to be a condition, but that of Associated Newspapers were only subsidiary.

(7) It was important to Bancks that the work should be published, and on the most conspicuous page of the section. The undertaking of Associated Newspapers was a condition, a substantial failing of which would entitle Bancks to treat the contract as at an end. (8) The fact that there had been successive breaches was enough to allow Bancks to treat the contract as discharged. (9) As Cheshire and Fifoot point out, the High Court continues to use the word "rescission" to refer to a discharge following a serious breach of contract. The words “terminate” and “termination” may be preferable to avoid any confusion with a “rescission” ab initio (as for misrepresentation).

c) Note, too:(1) the legal bias against finding implied essentiality (ie, the courts tend to err on the side of not permitting contracts readily to be destroyed by the unilateral decision of one party only); and(2) use of the word "condition" in the contract is not conclusive (though it may be indicative)

E. “Warranties”

1. These are "inessential" terms that give no termination rights upon breach, but an action for damages only.

F. “Innominate” or “Intermediate”

1. Hong kong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd [1962]a) This was a charter of a ship for 24 months. The owner was obliged to keep the ship in good repair. It was in fact not available to the charterer for some 7 months out of the 24. The charterer terminated the contract. The owner then said that it treated the termination by the charterer as itself wrongful and sued the charterer for damages.

b) The question was therefore whether the charterer was wrong in terminating or whether it was justified.

c) The actual decision is peculiar because it was held that the charterer was wrong in terminating. This illustrates what was said earlier about the hazards of terminating.

d) The owner was undoubtedly in breach - and, one would have thought, in a pretty substantial way - and yet it ended up winning the case because its breach was not regarded as sufficiently serious and it was the charterer who committed the serious breach by wrongfully terminating!

e) This is a common pattern in termination cases and reflects a very unsatisfactory aspect of the law of contract, namely, that there is no mechanism (equivalent to contributory negligence in negligence cases) whereby the courts can decide that both parties were at fault and make a proportionate order for damages accordingly.

f) the important point which emerges from this case is that not all terms can be categorised as conditions or warranties. Some terms are intermediate terms or "innominate" terms.

(1) Take the obligation of the owners to provide a properly maintained and seaworthy ship. This could be broken in very many ways, ranging from the trivial to the fundamental. The important question in relation to a particular breach is not whether the term is a condition or warranty but what effect the breach has on the contract as a whole. One formula that is used in this context - and the form of words used by Diplock LJ in Hong Kong Fir - is whether the breach deprived the other party of substantially the whole of the benefit of the contract.

2. These are neither "conditions" nor "warranties", but the court will "wait and see".

3. They relate to a distinction operative within the class of "non-essential" obligations, between breaches that are significantly serious to justify termination and other breaches.

4. The innocent party’s rights depend on the CONSEQUENCES ("substantiality"/"gravity") of the breach: Does it "go to the root of the contract"?

a) if so, the term is treated as a CONDITION(with consequent rights);

b) if not, the term is treated as a mere WARRANTY(with consequent rights).(1) "Does the occurrence of the event deprive the [innocent party] ... of substantially the

whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing [his side of the contract]?"

(a) Hongkong Fir Shipping v. Kawasaki [1962] 2 QB 26 (CA) at 66 per Diplock LJ

5. A term is likely to be classified as "intermediate" (or "innominate") if the obligation it creates is capable of being breached in various ways, some being trivial while others being serious in nature

6. Finally, note KirbyJ’s dissenting position in Koompahtoo, namely, that there are under general law only two categories of term, not three: (a) conditions, and (b) everything else:

a) "Either the term breached is essential or it is non-essential. It cannot be somewhere in between. If it is the former, termination will be justified. If it is the latter, the court can turn its attention directly to the objective indicia of ’substantial loss of benefit’ without feeling a need to affix the ’intermediate’ label on the contractual terms ex post facto."

b) "Thus, a right to terminate arises in respect of: (I) breach of an essential term; (2) breach of a non-essential term causing substantial loss of benefit; or (3) repudiation (in the sense of ’renunciation’). The common thread uniting the three categories is conduct inconsistent with the fundamental postulate of the contractual agreement." ([I 14])

XXVII.Termination of the Contract

A. A validly formed contract may be terminated (or “discharged”) in a variety of ways:

1. By mutual performance of the contract itself (automatic discharge, no residual liability);

2. By consent or “at will” (what is create by consent can be undone in the same way; formality or consideration is usually required);

3. For non-fulfillment of a contingent condition of performance (depends on “election”, unless there is unequivocal agreement it will occur automatically);

4. For breach of contract or repudiation (depends on the unilateral election of the innocent party; right to sue for damages survives termination);

5. By operation of law as a result of a frustrating event (automatic; no residual liability if nothing has unconditionally accrued before termination)

XXVIII.Termination by Performance

A. General

1. “Performance” refers to the acts that a party must do, or cause to be done, in order to fulfill (perform or discharge) the duties created by the contract.

2. Where both parties have fully performed their contractual obligations, the contract is discharged by performance.

3. There are two different types of "performance" here: "exact" and "substantial" (anything less will certainly constitute "breach", which is the converse of "performance" (later)).

a) Ask: "What did the promisor really promise?" "Has what she or he promised been done or supplied, to the required standard of care or quality?"

B. The “Exact Performance” Rule

1. Only exact and literal performance can discharge the contract, unless, as a matter of construction, all that the parties contracted for was "substantial performance" by the promisor (e.g. Tramways Advertising v. Luna Park (earlier)).

a) Note that there is a separate and distinct question as to whether a non-exact-performing promisor can recover the contract price from the promisee (next section).

C. ENTITLEMENT TO RECOVER THE CONTRACT PRICE

1. Obviously, the promisor who has discharged his or her performance obligations exactly may enforce the promisee’s contractual obligations; however, even the promisor who renders imperfect performance may recover the contract price (subject to set-off or counterclaim for

damages) if the performance received by the promisee was "substantial".

2. In this connection, we must consider first the legal distinction between "entire" and "divisible" contracts (which of these it is always depends of the construction of the particular contract), and between "dependent" and "independent" obligations.

3. Entire (or "lump-sum") contracts:a) Promisee’s obligation to pay the contract price is subject to the prior fulfillment of a condition precedent, typically exact and complete performance by the promisor of his or her part of the contract; no action can be brought for part only of the price, even where the promisor has substantially performed his or her obligations (unless substantial performance was all that was promised in return for the obligation to pay the price).

(1) E.g. the contract provides for a lump sum and "no provision is made for setting off a portion of the consideration against a portion of the performance".

b) Usually involves what is known as a "dependent obligation" (and the older cases involved a presumption of dependency), which applies where the parties perform sequentially: the obligations of the parties are dependent on one another, so that one party must perform first as a "condition precedent" to the other party’s having to perform next. (Who is to perform first depends on the construction of the contract in question.)

c) Illustrations:(1) Cutter v. Powell (1795)

(a) The defendant agreed to pay Cutter 30 guineas provided that he served as second mate on a voyage from Jamaica to Liverpool. The voyage began on 2 August. Cutter died on 20 September, when the ship was 19 days short of Liverpool. Cutter's widow brought an action to recover a proportion of the 30 guineas.(b) Held: The widow's action failed. The contract was interpreted as being an ‘entire’ contract for a lump sum, and nothing was payable until it was completed. Thus, even though the defendant had had the benefit of Cutter's labour for a substantial part of the voyage, no compensation for this was recoverable.

(2) Sumpter v. Hedges [1898](a) The plaintiff, a builder, contracted to build two houses and stables on the defendant's land for £565. The plaintiff did work to the value of £333, and then abandoned the contract, because he had no money. The defendant finished the buildings himself, using building materials left by the plaintiff. The plaintiff brought an action to recover the value of the work he had done on the buildings.(b) Held: The Court of Appeal held that the plaintiff could not recover. Collins LJ pointed out, although in some circumstances an agreement to pay might be inferred from the acceptance of a benefit, nevertheless:

(i) … in order that that may be done, the circumstances must be such as to give an option to the defendant to take or not to take the benefit of the work done.

(c) It would not be reasonable to expect the defendant to keep on his land a building which was in an incomplete state, and would constitute a nuisance.

4. Divisible (or "severable") contracts:a) A contract in which payment obligations are apportioned (expressly or implicitly) to distinct parts of the other party’s performance.

b) E.g. A agrees to make installment deliveries of goods to B, and B agrees to pay for each installment when delivered.

c) Illustration:(1) Government of Newfoundland v. Newfoundland Railway Co (1888)

(a) D (gov't) agreed to grant 5000 acres of land to P for every mile of railroad constructed. P only completed 25%. (b) Court held that D was bound, despite that the contract was not entirely performed as the contract was severable.

d) Note that the obligation to pay may be entire with respect to each severable part of the divisible contract (hence the real distinction is between entire and divisible "obligations", not between entire and divisible "contracts").

(1) E.g. A enters into a 12-month divisible contract with B and undertakes to pay B at the end of each month. B terminates the contract two weeks into the sixth month. A’s obligation to pay B for the sixth month may depend on B completing that month

5. In summary, the general rule is that the contract price is only recoverable in exchange for

exact performance of the whole contract or, where a divisible contract is involved, exact performance of the relevant part of the contract.

D. The Doctrine of “substantial performance”

1. This is the most important escape route from the rigid (hence potentially unjust) doctrine of the entire contract/dependent promise.

2. It may apply to entire contracts or to individual parts of a divisible contract.a) Note, the doctrine is always subject to the true construction of the contract, so it cannot be applied if the parties have agreed that performance must be exact. (Still modern courts appear to prefer to construe the contract so as to allow for the operation of the doctrine if possible.)

E. How does the doctrine work?

1. The promisor may recover the contract price (i.e. enforce the contract against the promisee) if his or her performance was "substantial" (but nonetheless inexact -- i.e. defective or incomplete).

2. Recovery of the price will be subject to a set-off for the cost of rectification, or, if appropriate, a damages award for the difference in value between the performance promised and that actually received.

3. Whether performance is "substantial" or not is a question of fact, degree and impression Courts focus primarily on the cost of making the performance that has been received conform to the contractual requirements:

a) If the cost is substantial, plaintiff will fail to recover (and remain liable in damages).

b) If the performance received is substantial, plaintiff will succeed in recovering the contract price (but again remain liable in damages for having breached the contract).

4. The nature of the clause broken or defect itself should also weigh in the equation:a) Regardless of the cost of rectification, did the claimant’s non-performance relate to a "condition" in the contract, a "mere warranty", or perhaps an "intermediate term" that has been seriously broken?

5. Illustrations: R

6. Hoenig v. Isaacs [1952]a) The plaintiff agreed to furnish and decorate the defendant's falt for L750.He completed the contract, but made some of the furniture so unsatisfactory that it required alteration.

b) The defendant had paid L400 by installments in the course of the execution of the contract, but, when he was sued for the remaining L350, he invoked CUTTER v POWELL on the ground that the plaintiff had not performed his part.

c) The contract has been substantially completed.

d) The plaintiff succeeded, but his claim was reduced by the cost of the necessary alterations.

e) Where a person agrees to do something for a lump sum, he can normally only sue for payment if the work is substantially performed; the courts will not imply a contract in favour of a plaintiff who has made an express agreement and failed to perform it (rule). No one should be entitled to claim payment unless he has done what he has bargained to do.

f) But this may work injustice; the word 'substantially' may be subjected to common-sense construction.

7. Bolton v. Mahadeva [1972] a) contract for the installation of a water heating system was held not to have been substantially performed where the system emitted fumes that made the premises uninhabitable and the system did not properly work due to insufficient radiators and insulation, and where the relative cost of rectification was between one third and one quarter of the contract price.

b) one would have to take into account both the nature of the defects and the proportion

between the cost of rectifying them and the contract price.

c) The Court of Appeal held the work to be ineffective for its primary purpose, and that there had not been substantial completion.

8. Jacob & Youngs Inc v Kent (1921)a) When the defect is insignificant, the court will find that there was substantial performance and excuses the breach of using the same type and quality of pipe which parties had agreed were the same except for brand name.

b) Measure of damages is not the cost to rip out the old pipe and install the new, but the difference in value which in this case is zero dollars.

c) Justice Cardozo began this opinion by examining the difference between promises and conditions. He reasons that where omissions are trivial and inconsequential they may be considered an independent promise and not a breach of a condition.

d) However, some promises are so integral to the substance of the contract that they must be considered a condition of the contract. Whether something is a condition or a promise must be determined by considerations of justice and the intentions of the parties at the time they formed the contract. Justice Cardozo also recognizes that courts look to considerations of “fairness and equity” in determining whether something is an inconsequential promise or a contractual condition.

e) Further, New York courts follow the liberal view and also consider the surrounding circumstances. Specifically, the courts “weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence.” In theinstant case, the cost of replacing the pipes would be great but the difference in value caused by the use of the different brand of pipe would be nominal at most.

f) Also, the use of the different pipe was a result of mere oversight, it was not an intentional or fraudulent deviation.

g) Therefore, Justice Cardozo concluded that the cost of completion would be grossly out of proportion to the good to be attained from correcting the defect.

XXIX.Termination for Breach or Repudiation

A. General

1. When can the victim of a contractual breach terminate the contract because of the breach?

2. Termination for breach is possible if and only if:a) The contract itself provides for a right (really a “legal power”) of termination for the breach in question

b) ****EXAM*** The particular breach is sufficiently serious to justify termination at general law.

(Of course, ALL breaches entitle the innocent party to claim damages, even if they are “nominal” only)

3. Note that the promisee may generally justify termination of the contract on ANY valid ground that existed at the time of his or her election to terminate, even if, at that time, she or he was ignorant of the particular ground or purported to terminate on some other ground

B. The Concept and Forms of Breach

1. Generally speaking, all breaches involve a failure to perform one's contractual obligations, a failure to discharge one's contractual duty(ies) in accordance with the applicable standard of duty

2. Contractual duties are either strict (“I will do X”) or based on care (“I will do my best to do X”). The scope of the promisor's duty must be decided by construction of the contract.

3. Note that breach may be “actual” (where the time for performance has arrived) or “anticipatory” (where the time for performance still lies in the future)

4. Also, a failure that constitutes actual breach may involve:

a) Non-performance (the promisor tenders either no performance or else a performance that the promisee is entitled to reject); or

b) Defective performance (the promisee receives a performance that is not in accordance with the contract in either quality or quantity, or both); and/or

c) Late performance (the promisor performs after the time stipulated in the contract for performance)

C. The Right to Terminate under General Law

1. Such a power is conferred only for “serious” events in the nature of breach, namely:a) Repudiation (or “renunciation”): the express or implied manifestation of an unwillingness or inability to perform the contract as a whole

b) Breach of “condition”: failure to perform a term regarded as essential by the parties or the law; and

c) Breach of an “intermediate term” causing substantial loss of contractual benefit (or increase in contractual burden) to the innocent party

2. WARNING: Do not take termination of a contract for any of these reasons lightly. Precipitate terminations can backfire badly! A wrongful termination constitutes a repudiation enabling the

other party to terminate and sue for damages.

D. Repudiation of Obligation ***EXAM***

1. Basically, a party to a contract “repudiates” the contract by making it clear that he or she does not intend to perform his or her obligations under it, or, as the case may be, to complete such performance

a) = “a serious matter, not to be lightly found or inferred”

b) = Repudiation must be “distinct, unequivocal and absolute”

2. The meaning of “Repudiation”:a) Unfortunately, the word “repudiation” is used in a number of differing (and sometimes misleading) senses:

(1) Koompahtoo Local Aboriginal Land Council v. Sanpine Pty Ltd [2007](a) After going to some length to approve Hong Kong Fir Shipping and the concept of intermediate terms, the majority decided that the conduct of Sanpine in failing to keep books of account or any financial records for the joint venture was such as to breach an essential term of the contract, as the term in the joint venture deed went further than the usual drafting of the clause. The clause required Sanpine to keep books of account and financial records of the joint venture in order to allow either party to assess the financial position of the joint venture.The majority also found that the breach was such that it went to the substance of the benefit Koompahtoo had contracted for and that Koompahtoo was entitled to terminate the contract.(b) Kirby's J judgment differed only in respect of the third category. He considered the use of 'intermediate' was not helpful, and the real issue is whether the conduct of one party is such to breach the contract in a way which causes substantial loss of benefit.

b) Technically, to "repudiate" a contract is to make it plain, by one’s words or conduct in the circumstances, either before performance has commenced or in the course of performance, that one absolutely no longer intends to be bound by one’s contract, either at all or only in a manner substantially inconsistent with the obligations imposed by the contract:

(1) It is saying to the promisee, unequivocally and without justification:(a) "I will not perform my side of the contract", or "I intend to perform, but am determined to do so only in a manner substantially inconsistent with my obligations and not in any other way."

c) The innocent party, if he or she "accepts" the repudiation, thereby "terminating" the contract, acquires immediately a cause of action for damages (based on the concept of "anticipatory breach" -- breach of a present obligation to remain ready, willing and able to perform).

d) An "unaccepted" repudiation is "a thing writ in water and of no value to anybody; it affords no legal rights of any sort or kind". It is nothing.

e) The contract remains on foot for the benefit and burden of both parties

f) The repudiating party may hence repent and withdraw his or her repudiation (or otherwise exploit subsequent events that excuse performance, such as frustration, non-fulfillment of a contingent condition or serious breach by the other party)

g) If the promisee comes under an obligation while the repudiation remains unaccepted, the promisee is not necessarily in breach by not performing or tendering performance

h) Foran v Wight (1989)(1) Purchasers paid a deposit of $7500 for the purchase of land. (2) Settlement was due on 22 June, time being of the essence. The vendors were obliged under the contract to register a right of way in favour of the purchasers but on 20th June they informed the purchasers that they would not be able to get this done by settlement date. (3) The 22nd June came and went without action by either party. The purchasers then terminated ("rescinded") the contract on 24th June on the basis that the vendors were not ready to complete. (4) They sought the return of the deposit. This is all the case was about: could the purchasers get back their deposit?(5) the evidence at the trial showed that the purchasers were having difficulty obtaining finance and probably would not have been able to carry out their side of the contract on 22 June. Of course they in fact did not carry out their side of the contract on the 22nd June. The vendors argued that because the purchasers were not ready, willing and able to perform on the day of settlement, they could not complain about the vendors’ inability to register the right of way.(6) HC judges used estoppel to say that the vendors by their conduct were estopped from insisting on performance by the purchasers.

i) The test for repudiation is objective but it is risky to infer repudiation simply from the other party's conduct

(1) Considers the nature of the defendant's conduct; the surrounding circumstances; the motives that prompted the conduct. Repudiation is often determined a matter of the defendant's “attitude”

j) Refusal to perform part only of the contract may give rise to a reasonable inference that the refusing party no longer intends to perform his or her future or outstanding obligations, and hence that he or she is “repudiating” the whole contract

(1) But in general that part must comprise an “important” or “substantial” obligation or set of obligations

k) A mere “honest” (albeit mistaken) misapprehension as to one's obligations or entitlements under the contract, especially if “open to correction”, will not support a charge of repudiation. There must be persistence in the erroneous interpretation “willy nilly in the face of a clear enunciation of the true agreement”

l) Illustrations

m) Starlight Enterprises v Lapco [1979](1) Lapco had contract to deliver 4,000 travel bags. But made a mistake in costing. After delivering some of the bags they tried to raise price of bags by over a 1/3. (2) Starlight wrote back a few weeks later and said that was a repudiation. It later appears Lapco thought it had a right to do so, but accepts it was wrong and agrees to give bags at original price. (3) Starlight refuse – contract cancelled on original alleged repudiation.(4) Was Starlight legally entitled to cancel based on Lapco’s attempt to raise price?(5) Starlight lawyer argues that Lapco was only going to carry out the contract in a materially different way from that originally agreed with no intention of doing it in any other way.(6) Held: Not an unqualified refusal b/c it resulted from an ‘erroneous interpretation of the contract’. Made it clear it would still give the bags over on what they thought the terms would be. All judges put much emphasis on Starlight canceling contract without any other communication with Lapco.

(a) Courts concern that when two parties are disputing the meaning of a contract, it’s best they try to sort out the differences before one runs off and cancels.(b) Value of security of contact.

n) Oxborough v. North Harbour Builders Ltd [2002] (1) Oxborough sued for specific performance with an associated plea that the builder’s performance or lack of it amounted to a total failure of consideration(2) Suing for specific performance thereby affirmed the contract (3) The builder acted on the Oxboroughs’ affirmation by continuing to work on the house in the 7 days leading up to the purported cancellation(4) the Oxboroughs were most unwise to attempt to resolve matters by proceedings in the High Court. The builder’s solicitors were entirely correct when they said in their sensible letter of 25 August 1999 that mediation or arbitration was the appropriate way to proceed rather than litigation in the High Court

o) Trawl Industries of Australia Ltd v. Effem Foods Pty Ltd (UBA) (1992) (1) Parties entered into a heads of agreement contract for TIA to supply fish heads(2) Contract price fixed for the first year, but in following years: Cost to TIA + percentage profit margin(3) UBA following execution of the written agreement, sought to place a certain interpretation upon the pricing formula which TIA did not accept. TIA purported to treat that interpretation as a repudiation of the written agreement. (4) The Court of Appeal found that both parties' interpretation of the written agreement was erroneous. TIA claimed damages for repudiation and rectification of the written agreement. UBA sought a declaration that the written agreement was void for uncertainty.(5) Held: TIA's claim for damages for repudiation and rectification and UBA's claim for a declaration should fail because:

(a) (By Kirby P) The promise in the heads of agreement was illusory and did not give rise to an enforceable obligation.

p) Tramways v. Luna Park (earlier)

q) Associated Newspapers v. Bancks (earlier)

r) Laurinder Pty Ltd v. Capalaba Shopping Centre Pty Ltd (later)(1) a landlord failed for a substantial time to register the lease or provide a lease in a form which could be registered.(2) The tenant sent a notice on 21 August to the landlord asking it to get on with it and saying that if the lease was not registered within 14 days then the tenant "reserved its rights". The landlord’s solicitor’s reply was sent on 3rd September saying that it had forwarded the notice to the landlord and were awaiting instructions.(3) The contract did not provide a deadline for registering the lease, nor was it an express term that the lease should be registered. But it was conceded by the landlord that there was an implied obligation to effect registration within a reasonable time. So there was a breach. This left the question whether it was a sufficiently serious breach.(4) Brennan J also thought that the notice was defective because it gave too short a time and because it did not make clear that time would be treated as of the essence after the sending of the notice. But Brennan J went on to say that it was still possible to establish repudiation without a notice or where there was a defective notice, as here. In this case the events after the notice was sent, particular the somewhat laid-back letter of 3rd September, in combination with the attitude displayed by the landlord before the notice was sent amounted to repudiatory conduct. (5) Deane and Dawson JJ came to the same conclusion, namely that the notice was not adequate but that the solicitor’s reply "bordered on the contemptuous" and evinced an intention not to take the contract seriously. Objectively, the landlord’s conduct was therefore repudiatory with the result that the tenant was justified in terminating.

E. Serious Breach

1. Refer to the materials discussed under the heading “The Classification of Contractual Terms”

F. Termination for Delay

1. All contractual obligations possess both a "substantive" and a "temporal" dimension: performance must occur either within the period specified in the contract or, if no period is specified, then within a "reasonable time

2. “Delay” may generate a termination right in two ways:a) There is a delay in performance (i.e. breach of a time stipulation, express or implied) or

b) Delay has occurred as a result of the breach (e.g. Hongkong Fir)

3. Termination for breach of a time stipulation (late performance):a) A contractual time stipulation may relate to completion of the contract or to some other term

b) Breach of a time stipulation may justify termination of the contract in the following circumstances:

(1) If the time stipulation was agreed to be essential to the innocent party (i.e. a condition), whether expressly (e.g. "time is of the essence") or implied (objective importance of timely performance).(2) Where the time stipulation is non- essential, there has been a delay evidencing repudiation of the contract.

c) At common law, time was generally treated as essential, whether that was expressly agreed or not; but in equity, performance on time generally was not treated as essential unless it was expressly agreed to be so, or else there was an expired notice setting a further reasonable period for performance of the obligation.

d) By legislation, the equitable rules as to contractual time stipulations now prevail in each State and Territory of Australia.

(1) E.g. s 62 of the Property Law Act 1974 (Qld):

62 Stipulations not of the essence of the contract(a) Stipulations in contracts, as to time or otherwise, which under rules of equity are not deemed to be or to have become of the essence of the contract, shall be construed and have effect at law under rules of equity.

4. Breach of "essential" time stipulationsa) Construction of the contract is key:

(1) Bunge Corp New York v. Tradax Export SA Panama [1981](a) issue in this case was whether a breach of a time clause was serious enough to justify termination. This was a contract for the purchase, sale and shipment of soya bean meal. The purchaser was obliged under the contract to give the seller 15 days’ notice nominating a port and vessel for shipment. The purchasers were 4 days late in giving this notice. The sellers then said that they treated this as a repudiatory breach and terminated the contract and sued for damages.(b) The buyers (not surprisingly) argued that, although they were late, this was a trivial breach and should be tested by reference to the Hong Kong Fir approach, namely, to assess what effect being 4 days late had on the contract as a whole. On this argument, so the buyers said, the breach did not justify termination.(c) The House of Lords took a very hard-nosed approach. They held that the time clause was essential (a "condition" in terms of the language of condition/warranty). Lord Wilberforce said that applying the Hong Kong Fir approach to a time clause was fundamentally flawed because the reason for the approach adopted in Hong Kong Fir was that the clause in that contract, like many contract clauses, could be broken in so many different ways. But, as Lord Wilberforce so wisely said, there is only one way to break a time clause, and that is to be late.(d) All the law Lords stressed that in mercantile contracts like this time clauses are very important because they provide certainty. In other words these sorts of contracts are not the place for rubbery time clauses. This case also reflects the very important role that the English courts play in sorting out shipping disputes.

5. Breach of "non-essential" time stipulations (including where time is not stipulated at all)a) Repudiation must be shown (i.e. to support a lifting of equitable restraints on termination). "Mere delay" is not repudiation, unless it is "so gross and protracted...

(1) "Mere delay in settlement, without any expression of an intention to repudiate, will not of itself amount to repudiation unless it is so gross and protracted as to lead to an inescapable inference of repudiation; for a repudiation s derived from an essential ~reach, either actual or anticipatory, and mere delay s usually neither, unless time is of the essence

or notice making it so has been given .... "

b) Repudiation through delay may be inferred from the breaching party’s failure to comply with a reasonable notice to perform the term breached:

(1) The notice requirements (i.e. in the absence of a form-of- notice provision in the contract itself) are:

(a) The notice can only be served following a breach (i.e. after the time set for performance has passed or, if no time is set, after a "reasonable time");(b) The notice must require strict compliance with the terms of the contract within a specified period, which period must be "reasonable" in the circumstances (= a question of fact); and(c) The breaching party must be advised that failure to comply with the notice may be treated as a basis for termination of the contract.

c) Illustrations:(1) Louinder v. Leis

(a) Parties entered into contract for sale & purchase of real estate, Leis the purchaser (b) Time for performance/completion of contract was not stipulated, nor was time made of the essence(c) Notice to perform must relate to the obligation which has not been performed on time.(d) Per Mason J:

(i) “Accordingly, delay beyond the stipulated date will give rise to a liability in damages. But…mere breach…does not justify [termination]…[u]nreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify [termination]….The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies termination.

(e) Can only issue a notice to perform if there had been a breach of a time stipulation (non-performance within a 'reasonable time')

(2) Laurinder Pty Ltd v. Capalaba Park Shopping Centre Pty Ltd(a) Parties entered into lease agreement, Laurinder agreeing to lease from Capalaba for a 6-year period(b) Lease remained in an unregisterable form, but Laurinder paid to Capalaba fees(c) Parties were bound by the contract even when not registered(d) Laurinder takes possession of property, but 9 months later gave notice to Capalaba to quit the lease on the basis that not registering the lease was repudiation(e) Capalaba treated this as repudiation on Laurinder's part (f)

G. The “Election” to Terminate or Affirm (under general law)

1. The concept of election:a) The victim of a serious breach or repudiation may choose between:

(1) Asserting a right to hold the other party to the existing and valid contractual relationship between the parties (“affirming” the contract); and(2) Exercising an inconsistent legal power allowing that contractual relationship to be put to an end (“terminating” the contract)(3) It is not compulsory that she or he elects to terminate the contract; and there is no general duty of reasonableness in making the election

b) Illustration

c) White & Carter (Councils) v McGregor (1962)(1) P was in business of providing litter bins with advertisements on them(2) D's manager had signed a contract with P to advertise D's garage business for a 3 year basis – but D's manager did not have authority to do so, D called up P on same day to cancel the contract (3) It did not matter if manager did not have authority – P could either accept the repudiation, or affirm the contract (4) P chose to affirm the contract and provide the ads and charged D at the end(5) D argued they should have accepted the repudiation and recovered damages only(6) It was held that there is no duty on the part of P to accept repudiation due to 'bad contracts'(7) No general equitable restriction on election

(a) Cooperation limitation(b) “legitimate interest”? (obiter)

d) The election can only be made once:(1) If the contract is terminated, “what is dead is dead”

(2) If the contract is affirmed, the innocent party must await a fresh reason to terminate

e) What amounts to “affirmation” of the contract?(1) A question of fact in all cases(2) Oxborough v North Harbour Builders Ltd (above)(3) Coastal Estates v Melvende [1965](4) Distinguishes between two types of election

2. The “mechanics” of the election to terminate:a) The election to terminate must be clearly and unequivocally communicated (or otherwise “made known”) to the breaching or repudiating party. Termination is effective upon notification.

b) The termination may be made known by words, or by conduct evincing an intention to terminate, or both. No particular form of words is required, provided the intention to terminate is made known.

c) A notice terminating the contract is not ineffective if it is based on an invalid ground, provided termination can be justified on some other, valid ground

d) Can silence, or non-performance of an obligation, ever, as a matter of law, be capable of constituting an act of termination?

(1) See: Vitol SA v Norelf Ltd (The “Santa Clara”)(a) V and N had entered into a contract on 11 February 1991 for the purchase of a cargo of propane. On 8 March, V sent a telex to N repudiating the contract. This was subsequently agreed to amount to an anticipatory breach which, if accepted by N, would bring the contract to an end immediately. (b) N did not communicate with V but, on 12 March, started to try to find an alternative buyer and, on 15 March, sold the cargo to X. (c) V challenged the arbitrator's decision that these actions by N amounted to an acceptance of the anticipatory breach. Phillips J upheld the decision of the arbitrator. The Court of Appeal, however, reversed this decision. There was a further appeal to the House of Lords.(d) The House of Lords restored the decision of the arbitrator and the trial judge, and held that N's actions constituted acceptance of V's anticipatory breach.

3. The consequences of termination:a) Termination operates prospectively (from the time of notification of the election) and not retrospectively (i.e. “termination” is not “rescission”):

(1) Both parties are released (“discharged”) from all further performance of the primary obligations under the contract; neither party can call for the future performance of the substantive promissory obligations under the contract (2) However, terms that are intended to survive breach and termination are generally enforceable (i.e. secondary obligations such as exclusion and liquidated-damages clauses, and arbitration and choice-of-law clauses).(3) Unconditionally accrued rights are not divested by the termination and may be enforced (e.g. an unpaid deposit or outstanding installment or fee may be recovered); no restitution of payments made under the contract is possible unless there has been a "total failure of consideration" on the other side:

(4) Heyman v. Darwins Ltd [1942] (a) an arbitration clause in a contract between manufacturers and distributors relating to the sale of steel products provided that any dispute arising between the parties in respect of the contract should be referred to arbitration. (b) The appellants claimed that the respondents had repudiated the contract and brought proceedings asking for a declaration to that effect and damages for breach. The respondents applied to have the action stayed in order that it might be dealt with under the arbitration clause.(c) The House of Lords held that the dispute fell within the terms of the arbitration clause and that the action ought to be stayed. All members of the Court were agreed that even on the basis that the appellants had rescinded the contract for a repudiatory breach by the respondents, the arbitration clause still applied.(d) In reaching this conclusion, the Court stressed the limited nature of the effect which rescission for breach has upon a contract.

(5) McDonald v. Dennys Lascelles Ltd (1933)

(a) a contract for the sale of land was terminated because the vendor was unable to complete. But in the meantime the purchaser had been in default in making a payment and had been given more time to pay. (b) The basic issue was: what were the rights and liabilities of the parties at the time of termination? (c) In this case the purchaser had to pay a deposit and then instalments at set times. Transfer of title and the last amount for payment were to occur in the future. The contract was terminated after the deposit had been paid and after an instalment was due but before transfer of title to the land. (d) Thus: (e) ½ ¾ ¾ ¾ ¾ ¾ ý ¼ ¼ ¼ ¼ ½ (f) Generally in an ordinary contract for the sale of land or goods the price

has to be paid on delivery ("settlement" in the case of land). But if the contract has specified that amounts of money will be paid on particular days by way of instalments, then these instalments become debts due to the vendor as they fall due. Therefore, the purchaser in this case owed the unpaid instalment at the time the contract was terminated. (g) Dixon J explains very clearly the difference between rescission in its true sense (eg for fraud or mistake, etc) and termination for breach. He does this on top of p 662. As a matter of logic, if a contract is terminated, then any accrued rights are enforceable. (h) However, on the 10th line there is an important qualification to this (It does not, however, necessarily follow ..."), which we have come across before, and that is the total failure of consideration rule. In a contract for the sale of land where the purchaser pays instalments in advance, the instalments are legally due once they have fallen due but, in the end, the purchaser is relieved from having to pay them (or can get them back) if the purchaser in fact gets nothing. Of course in a contract for the sale of land, the purchaser either gets title or nothing. So, the purchaser is relieved against having to forfeit the instalments. If they have been paid, they can be recovered. If they are owing, they do not in the end have to be paid. (i) There are actually 2 rules at work here: a restitution rule that money paid where there is a total failure of consideration can be recovered; and an equitable rule which provides what is called relief against forfeiture. Dixon did say that it was the legal rule which was at work in this case. (j) If the contract has been terminated because of default by the purchaser, although instalment may have to be returned by the vendor, the vendor is still able to sue for damages. This leaves the vendor with a nice practical problem. In theory he or she should return the instalments and then sue for damages. No-one in their right mind would do that.

(6) Foran v. Wight (above)

(7) "Affirmation" is no longer possible.(8) The innocent party’s right to recover damages s not affected by termination.

(a) But note: The innocent party can only get damages for anticipatory breach or repudiation if he or she elects to terminate the contract; otherwise, he or she must await actual breach.(b) In contrast, the innocent party is entitled to damages for actual breach regardless of whether he or she terminates the contract.

H. Termination by frustration

1. GENERAL

2. Consider the following scenarios:a) An actor is under contract to appear in a movie but dies before the movie is shot.

b) An artist is under contract to paint ~ portrait but is struck blind.

c) X is under contract to use pesticide, but a law is passed prohibiting pesticide.

d) Contract to buy a house; buyer intends to renovate. Following sale, but before settlement, the house is declared a heritage site and renovation is prohibited.

e) S contracts to sell a sunken vessel to B, who intends to salvage it. The vessel does not exist.

f) An artist contracts to paint a portrait of a person who dies.

3. How would/should the law respond to these various scenarios?

4. STARTING POINT:a) A party who has voluntarily assumed an absolute and unconditional contractual obligation is strictly bound to perform that obligation an(J may be liable in damages for failure to perform.

b) = the rule of absolute performance in Paradine v. Jane (1647) Aleyn 26; 82 ER 897

c) But what if supervening events preclude performance or render performance impossible or oppressive?

d) EXCEPTION:-- The contract may be "frustrated"!

e) Frustration = "the termination of the contract by operation of law on the emergence of a fundamentally different situation".

(1) per Lord Reid in Davis Contractors v Fareham UDC[1956] AC 696 at 723

I. Separate questions on termination, terms, and formation

1. Each one does not draw from the other areas