Law of Contract II

Dakshayani Velayudhan Study Circle
Email ID: dakshyanisfistudycircle@gmail.com
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after reading the complete text.
INTENTION TO CREATE LEGAL RELATIONS
 Intention to create legal relations is assessed objectively (ie. use reasonable person’s interpretation of the
words & conduct of the parties)
 There is a presumption that business deals are, & social/domestic arrangements are not, intended to be
legally enforceable
Business deals
 If the context of the agreement is commercial, legal relations are presumed to be intended
 This presumption of fact can be displaced by a contrary intention
 Rose & Frank Co v J R Crompton & Bros Ltd (express contrary intention)
 Parties to a commercial deal may expressly provide that their agreement is binding in honour but
not in law
 Admin. of Papua New Guinea v Leahy (implied contrary intention)
 Arrangement was of the government supplying a gift  not a private contract  implied no
intention to create legal relations
Domestic deals
 If the context of the agreement is social or domestic, legal relations are presumed not to be intended (Cohen
v Cohen)
 This presumption of fact can be displaced by a contrary intention
 Todd v Nichol (implied contrary intention)
 *Sister-in-law & niece were offered free accommodation if they moved from UK to Adelaide
 The consequences of acting in reliance upon the agreement were serious  implicit that the sister-
in-law & niece wouldn’t had made such a major move without an intention to be legally bound 
under the circumstances, the presumption was displaced
 Jones v Padavatton (presumption not displaced)
 *Mother promised daughter that she will give house if she moved from USA to England and
studied law there
 *Daughter never contemplated the possibility of her mother going to court to enforce legal
obligations
 Circumstances were short of displacing the presumption
AGREEMENT
Contract cannot be formed unless

 no further negotiations are needed (ie. offer & acceptance exist), and
 the parties are ready to be bound
Offer
 Offer occurs when one party has
 stated their terms, and
 indicated their readiness to be bound when the other party accepts them
 If there is no intention of a readiness to be bound, then it is at most an invitation to treat
 Payne v Cave (auction)
 Calling for bids = invitation to treat, submitting a bid = offer, hammer fall = acceptance
 Pharmaceutical Society GB v Boots (display in shop)
 *Self-service shop displayed goods on shelves
 Display of goods is an invitation to treat, not an offer because customers can change their minds
after taking goods off the shelf
 Customer makes the offer to buy, which the shop owner can accept or reject
 Advertisements
 Where the context of the advertisement is a proposed bilateral contract (promise for promise), it will
normally be an invitation to treat [Sale  can’t have contract with whole world  no readiness to be
bound  invitation to treat]
 Where the context of the advertisement is a proposed unilateral contract (promise for a particular act),
it will normally be an offer [Reward  advertiser simply wants an act done  no contemplated further
negotiations  readiness to be bound  offer]
 Carlill v Carbolic Smoke Ball Co (proposed unilateral contract, mere puff, world at large)
 *$100 reward to those who contract influenza/cold after using ball as prescribed
 *$1000 deposited to show firm’s sincerity
 Deposit sentence shows that the reward was not a mere puff (reasonable person would take the
reward seriously)
 Possible to have an offer to the whole world
 Lefkowitz v Great Minneapolis Surplus Store (proposed bilateral contract)
 *Advertised fur coat sale – 1st customer can buy a fur coat at a bargain
 Proposed bilateral contract, but it was clearly an offer & didn’t leave any doubt
 If intention is made clear enough, there is no reason why an advertisement in sale cannot be an
offer
Acceptance
 Acceptance occurs when offeree says or does something that indicates an intention to accept the proposed
terms
 No intention to accept the terms proposed if:
 offeree introduces a new term to the offer (counter-offer)
 offeree accepts subject to contract [there is no intention to be bound until the formal contract is
signed] (Masters v Cameron)
 Acceptance can be inferred from conduct (eg. unilateral contracts)
 General rule: Brinkibon Ltd v Stahag Stahl mbH
 Acceptance is not effected until it is communicated to the offeror
 Contract is formed at the place where the acceptance was received by the offeror
 Exceptions to general rule
 Acceptance by post
 Postal acceptance rule: If the parties contemplate that the acceptance might be posted, acceptance
occurs when the letter of acceptance is posted (Henthorn v Fraser)
 The rule does not extend to instantaneous or near instantaneous modes of communication, which
are effective acceptances only when received by the offeror
 The offeror can choose to negate the rule, if the terms of the offer expressly require actual notice
of acceptance (Bressan v Squires)
 Dispensing with the requirement of communication of acceptance
 The requirement that acceptance be communicated is for the benefit of the offeror, who may
expressly or impliedly dispense with it
 Bilateral contract  waiver of communication must be express
 Unilateral contract  implicit that the offeror just wants the act done without prior
acknowledgement that the offer is being accepted  acceptance need not be communicated
(Carlill v Carbolic Smoke Ball Co)
 Felthouse v Bindley
 Offeror cannot impose a contract on the offeree by stipulating silence as acceptance (ie.
Offeror can’t say that a failure to reject will be acceptance)
 But the offeree can impose a contract on the offeror, because the offeree shows an intention to
accept  binding contract
 If the contract is not being imposed on the offeree, there will be no objection to silence
being acceptance
 Where the offeror prescribes a specific mode of communicating acceptance, the prescribed mode could be
acceptable or indispensable
 Manchester DCE v Commercial & General Investments Ltd
 *Offeree sent post to surveyor’s rather than offeror’s address
 *Held that sending to the different address was no less advantageous to the offeror  acceptance
effective
 Generally, acceptance should be by the mode prescribed or any other mode which is no less
advantageous to the offeror
 If the offeror intends an exclusive mode of communicating acceptance, he must make this clear
 This rule is for the protection of the offeror, who may dispense with the requirement if desired
 Time of acceptance – what happens if the proposed unilateral contract is revoked in the middle of the act?
 Abbott v Lance
 *If L sells his property to someone else while A travels to & inspects it, L must pay A 100 pounds
 *L revoked the offer when A was halfway to L’s property
 L’s promise to pay was a potential unilateral contract
 A’s commencement of travel constituted acceptance & consideration
 Veivers v Cordingley
 *C promised to pay V extra $200k if council’s approval was forthcoming within 12 months
 *V took active steps to secure the subdivision
 *After commencement but before completion, C revoked offer
 Where the offeree has already started doing the acts which, when completed, will constitute
acceptance, then the offer becomes irrevocable
 As long as commencement of the act indicates intention to accept, the offer becomes irrevocable
 The offeror need not know whether the act has commenced (because unilateral contract 
requirement of communication impliedly dispensed with)
 An act preparatory to performance will not do
 Intention to accept
 Williams v Cawardine
 *Def offered reward to anyone giving information about a murder
 *Pl gave the information to ease conscience (acted entirely by motive)
 Provided the offeree knew of the offer (which the Pl did), then motive is irrelevant
 R v Clarke
 *Govt offered reward for info leading to conviction of murder
 *Pl gave the info which led to the conviction
 *C gave the info solely to avoid murder charges, and did not have the money in mind when giving
info
 Pl’s motive was inconsistent with an intention to accept (unlike Williams v Carwardine)
 (This is not objective?)
 Provided the offeree knew of the offer at the time of acceptance, it will be inferred that there was an
intention to accept. But this inference can be displaced by a completely different motive.
TERMINATION OF OFFER
Revocation
 Byrne v Van Tienhoven
 A revocation terminates the offer when it is communicated to the offeree
 Although the offeror changed his mind before acceptance, the revocation had not reached the offeree at
the time of effective acceptance (posting)  Ineffective revocation
 Dickinson v Dodds
 *Def offered to sell Pl houses for 800 pounds
 *Def stated that the offer was open until Friday 9am
 *Def sold houses to 3rd party before promised time
 *Pl heard of the sale from a 4th person
 Def was allowed to break the promise of keeping the offer open, since there was no consideration for it
 Communication of revocation can come from any source
 Revocation of a proposed unilateral contract?
 Shuey v United States: Offers to the world at large can be validly withdrawn in the same way that they
were made (it does not matter that the revocation does not reach the particular offeree)
Lapse of Time
 Offeror may effectively impose a time limit on the offer
 Where no time limit is expressed
 The offer will lapse after a reasonable time
 In most cases a considerable time is needed for lapse of offer, because the offeror is free to revoke
beforehand
Occurrence of a condition subsequent

 The offeror may specify an automatic termination of the offer upon the occurrence of some external event,
regardless of whether the parties are aware of that event’s result
Rejection
 An offer is terminated when the offeree communicates rejection to the offeror
 Hyde v Wrench
 *Def offered to sell farm for 1000 pounds
 *Pl replied offering 950 pounds, which the Def refused
 *Pl then agreed to pay the originally asked 1000 pounds
 A counter-offer implies rejection
 Pl’s ‘agreement’ to pay the original 1000 pounds was a new offer, which the Def was free to reject
 Butler Machine Tool Co Ltd v Ex-cell-O Corp Ltd
 *Pl supplier sent a quote containing terms that included a price variation clause
 *Def buyer sent an order with no price variation clause
 *Supplier signed a tear-off slip which accepted the order on the buyer’s terms
 *Supplier invoked the price variation clause
 Seller’s quotation was an offer, but the buyer’s reply order was a counter-offer because the terms were
different
 This counter-offer was accepted by the seller when they completed & returned the tear-off slip
 Stevenson Jaques v McLean
 *Def telegraphed offering to sell iron at 40s per ton
 *Pl replied ‘Please wire whether you would accept 40 for delivery over 2 months or if not longest time
limit you would give’
 Pl’s reply was a mere inquiry (there was nothing specific by way of offer or rejection)  should not be
treated as a rejection
Death of either offeror or offeree

 Where personality of the dead party would be involved in the performance of the prospective contract (eg.
performing in concert or writing book), the offer is terminated at the time of death
 Where personality of the dead party is not involved (eg. paying money), the offer can be accepted anytime
before the death comes to notice of the living party
CONSIDERATION (a requirement for simple contracts only)
Definition of Consideration
 The promisee must provide consideration for the promisor’s promise for it to be enforceable (under the law
of contract).
 ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is
bought’ (Pollock).
 In unilateral contracts, consideration is the doing of, or forbearance from, an act.
 In bilateral contracts, consideration is a promise.
Consideration must be legally sufficient
 Illegal, love or concern  Not legally sufficient.

 Adequacy.
 ‘Consideration must be sufficient, but need not be adequate’  Courts will not inquire into the
adequacy of consideration.
 Chappel & Co Ltd v Nestle & Co Ltd: Consideration need not be a commercially equivalent exchange
for the promise.
 *Nestle, in an attempt to boost sales, offered to sell records for 1s 6d plus 3 of its chocolate
wrappers.
 *Wrappers were worthless to Nestle.
 The wrappers constituted part of the consideration.
 Pre-existing duties.
Pre-existing public duty:
 General rule: A promise to perform (or performance of) a pre-existing public duty is not good
consideration.
 Glasbrook Bros Ltd v Glamorgan CC: An act/promise that exceeds the pre-existing public duty is good
consideration.
 *Glasbrook promised extra money to police in exchange for extra protection.
 *Police provided greater protection than was reasonably required under their public duty.
 The police did not have a pre-existing duty to provide the extra protection  their action was
good consideration for the promised payment.
 Popiw v Popiw: A public duty that cannot be enforced is not a pre-existing duty.
 *Husband promised his wife title to the house if she returned home to cohabitate.
 *Wife was already under a duty to return to cohabitation.
 Since the law neither could or would force the wife to return home, the wife’s return was good
consideration.
 Hudson J accepted Lord Denning’s statement in Ward v Byham.
 Ward v Byham: Traditional view is challenged by Lord Denning MR.
 *Father promised to pay mother for looking after the child.
 *Mother was already under statutory duty to maintain the child.
 Lord Denning MR: A promise to perform (or performance of) an existing duty is good
consideration, because it is a benefit to the person to whom it is given.
 Morris & Parker LJJ: Mother had undertaken to do more than was required under her duty as
mother  good consideration.
Pre-existing contractual duty between the same parties:
 Stilk v Myrick: A promise to perform a pre-existing contractual duty is not good consideration.
 *Two sailors deserted, and were not replaced by Captain.
 *Captain therefore promised extra wages to the remaining sailors if they worked the ship back to
London.
 *In original contract, the sailors promised to do all that they could under emergencies during the
voyage.
 Desertion of a part of the crew is an emergency of the voyage  remaining crew were bound by
original contract to perform the additional work anyway  not good consideration.
 Hartley v Ponsonby: If the additional performance went beyond that originally contracted for, it is good
consideration for the fresh promise.
 *17 of the 36 sailors deserted, leaving a crew of 19.
 *Captain promised some remaining sailors extra payment if they assisted in sailing back
 *Hartley was already contractually bound by the original contract to do all he could in
emergencies.
 The pre-existing contractual duty did not extend to sailing an unseaworthy vessel  The
additional performance went beyond that originally contracted for, and so was good consideration.
 Williams v Roffey Bros: Even where there is a pre-existing contractual duty between the parties, a
‘practical benefit’ to the promisor will suffice.
 *Builder agreed to pay Contractor to renovate flats.
 *Contractor went into financial difficulty and could not finish in time.
 *Builder would suffer penalties if the project was finished late.
 *Builder therefore promised Contractor an extra sum payable per flat, to finish renovating in time.
 *Contractor finished 8 more flats before abandoning the job.
 *Can Contractor recover the extra sum for the 8 flats?
 In exchange for its promise to pay the Contractor an additional sum, the Builder obtained (from
Contractor’s continuance of the work) the ‘practical benefit’ of (1) possibly avoiding penalties for
the delay, (2) avoiding the trouble and expense of finding another subcontractor, and (3) avoiding
bringing Contractor to court  Contractor’s continued work was sufficient consideration for the
Builder’s promise of additional payment.
 ‘Existing duty’ rule in Stilk v Myrick does not satisfy commercial needs, practices & expectations.
 Court was refining, not overruling, the rule in Stilk v Myrick.
Pre-existing contractual duty with a third party
 The Eurymedon: A promise to perform (or the actual performance of) a pre-existing contractual duty to
a third party, is sufficient consideration.
 *Consignee promised that the Stevedores are not liable for negligence.
 *Stevedores unloaded goods, and negligently damaged Consignee’s goods.
 *Stevedores were already contractually bound by a contract with a TP (Shipowner) to unload the
goods.
 *Did the Stevedores’ unloading constitute sufficient consideration for the Consignee’s promise
that the Stevedores are not liable?
 The Stevedores’ unloading was an existing contractual duty to a TP (Shipowner), but was
nevertheless good consideration for the Consignee’s promise of exemption because the Consignee
obtained the benefit of a direct obligation which he can enforce.
 Forbearance.
 Dunton v Dunton: Forbearance may be sufficient consideration.
 *Husband promised to pay wife monthly, provided she ‘conduct herself with sobriety, and in a
respectable, orderly and virtuous manner’.
 Wife was legally entitled to conduct herself in any way she liked.
 Wife’s promised forbearance of her liberty to conduct herself is good consideration.
 Part payment of debt.
 The rule in Pinnel’s Case: Payment of a lesser sum on the day in satisfaction of a greater, cannot be
any satisfaction for the whole.
 A promise to pay a lesser sum is not, by itself, sufficient consideration for relinquishing the greater
sum because the payer is already obliged to pay the lesser sum, plus more.
 However, acceptance of something other than the money owing will be sufficient consideration for
the promise to relinquish the whole sum.
 Note: Payment of a lesser sum can be sufficient consideration for satisfaction of the greater sum, if
the debt is paid:
 In a different manner (eg. by 3rd party),
 At a different time, or
 In a different place.
 Foakes v Beer: Application of rule in Pinnel’s Case. (Note: can ignore words in brackets)
 *Beer promised not to take further proceedings on Foakes (for interest), if Foakes paid off the full
amount of his debt (without interest) to Beer.
 *Foakes paid full amount (without interest), but Beer sued Foakes for interest on the debt.
 Foakes was already obliged to fully repay his debt (with interest)  Foakes did no more than he
was contractually and legally obliged to do  not sufficient consideration for Foakes’ promise not
to sue.
 Re Selectmove Ltd: Williams v Roffey principle is not extended.
 A promise to do something is the same as a promise to pay something.
 However, to extend Williams v Roffey to a practical benefit derived from a promise to accept a
lesser sum for a larger debt, would contradict Foakes v Beer, a House of Lords case  Court of
Appeal could not extend Williams v Roffey.
 Musumeci v Winadell:
 *Musumeci leased a fruit shop in a shopping centre from Winadell.
 *Musumeci claimed that they could not compete against another store in the shopping centre.
 *Winadell promised to reduce Musumeci’s rent by 1/3, if they stayed.
 No difference in principle between promise of additional payment (Williams v Roffey case) and
promise of reduced payment (Musumeci case)  Follow Williams v Roffey & apply ‘practical
benefit’ test.
 In exchange for its promise to accept a reduced rent from Musumeci, Winadell received the
‘practical benefit’ of (1) a successful-looking, fully-let shopping centre, (2) a good reputation, and
(2) not having to find another lessee  Musumeci’s payment of a lesser sum was sufficient
consideration for Winadell’s promise.
 Consideration must be in return for the promise of the other party.
 Australian Woollen Mills Pty Ltd v The Commonwealth: There must be a connection between
consideration and the alleged promise it supports.
 *Govt promised to pay manufacturers a subsidy on wool purchased for domestic consumption.
 *Alleged consideration is manufacturer’s promise to purchase wool.
 Test: Whether there is a promise (express or implied) offered in consideration of the doing of an
act.
 Nothing in the facts suggests ‘that the payment of subsidy was put forward in order to induce any
manufacturer to purchase wool’  not good consideration.
Consideration may be executory or executed, but not past.
 Roscorla v Thomas: An act that precedes the promise cannot be in return for it, and therefore cannot be
consideration for the promise.
 *Pl purchased Def’s horse.
 *After the deal was completed, Def promised that the horse was sound and free from vice.
 The purchase had already happened, and so was past consideration for Def’s promise  Pl had
given nothing for Def’s promise  no consideration.
 Lampleigh v Brathwait: If the past act was requested, and it was reasonably implicit that there will be
payment for the past act at the time of request, then the past act is consideration for a subsequent
promise to pay.
 *Def, having committed murder, asked Pl to obtain a royal pardon.
 *Pl made journeys at his own expense to find the pardon.
 *Def afterwards promised him money for his trouble.
 *Consideration appears to be past.
 A mere voluntary courtesy will not be consideration, but this is not the case here.
 The Def’s request for assistance carried an implied promise that the Pl will ultimately be paid for
his services  the request and promise to pay were part of the one transaction  Pl’s
consideration was not past  Def’s promise to pay was enforceable.
 Re Casey’s Patents: Where a service is performed at another’s request, and a subsequent promise to
pay is made, then that promise will be enforceable if, when the request was made, it was reasonable to
assume that in the circumstances, the service performed would ultimately be paid for.
 *Promoter promoted an invention commercially.
 *After the promotion, the Inventor promised to give the Promoter a 1/3 interest in the patents.
 *Inventor decided not to pay anymore, alleging that the consideration was past.
 At the time the past service was requested and performed, there was an implied promise that it
would be reasonably paid for.
 Subsequent promise to pay a stipulated amount serves as evidence of what is the reasonable
amount.
 Since the second promise is part and parcel of the first, consideration for the first promise extended
to the second  promised payment is enforceable.
Consideration must move from the promisee, but it need not move to the promisor.
 Coulls v Bagot’s Executor and Trustee Co Ltd: If a promise is made to promisees jointly, consideration
need only move from one of them.
 *Coulls owned property that O’Neil wishes to quarry.
 *Parties entered a contract, which provided that O’Neil was to pay royalties to both Coulls and his
wife as joint tenants.
 *Coulls provided consideration, but not his wife.
 *Coulls died.
 If wife is a party of the contract, she is a joint promisee  entitled to royalties even though the
consideration was provided only by the deceased.
 Options.
 Goldsbrough Mort & Co Ltd v Quinn: A promise to keep an offer open for a fixed period (an option)
will be enforceable only if there is consideration for that promise.
PROMISSORY ESTOPPEL
 Even in the absence of consideration, the promisor may be liable to make good a detriment incurred by the
promisee in reliance on the promise.
 Je Maintiendrai Pty Ltd v Quaglia: Detrimental reliance is essential.
 *Pl agreed to reduce rent paid by Def.
 *When the Def later proposed to vacate, the Pl sued for the accumulated arrears.
 The detriment of the promisee is measured only at the moment when the promisor proposes to
resile from his promise.
 Implicit that the Def had conducted its affairs differently as a result of the promised reduction. It
spent the money elsewhere, and so did not have it readily available to meet the alleged lump sum.
 If the Pl were allowed to recover the arrears, the Def would suffer a detriment  Unjust to
allow recovery.
 D&C Builders Ltd v Rees: Someone behaving unconscionably cannot rely on estoppel.
 *Def owed the Pls money.
 *Def knew that the Pls needed the money to stave off bankruptcy, and insisted a lesser sum in
satisfaction of the debt.
 *Pl reluctantly agreed to accept the lesser sum in satisfaction of the debt.
 *Pl later sued for balance of the account.
 Pl not estopped from going back on the promise to accept a lesser sum, because the Def had held
the Pls to ransom.
 Legione v Hately: The representation must be (expressly or implicitly) clear and unequivocal (but it
does not have to be so in entirety).
 *Vendors gave Purchasers notice that the purchase contract will be rescinded if the default was not
remedied by 10th August.
 *Purchasers on 9th rang Vendor’s solicitors and asked secretary if they could settle on 17th.
 *Secretary replied ‘I think that’ll be alright but I’ll have to get instructions.’
 *On 14th, Vendor’s solicitors notified Purchasers that the purchase contract was rescinded.
 Secretary’s statement indicated that she was not in a position to agree  Secretary had not made a
clear and unequivocal representation that the Purchasers could disregard the expiry  no basis for
promissory estoppel.
 Waltons Stores (Interstate) Ltd v Maher: 1) Promissory estoppel can be used to defend or create an
action, 2) It can be applied even if there is no pre-existing contract, 3) Unconscionability satisfied by
(a) a creation or encouragement by the party estopped of an assumption, that either (i) a contract will
come into existence or (ii) a promise will be performed; and (b) that the other party relied on that
assumption (c) to his detriment (d) to the knowledge of the party estopped.
 *Maher proposed to reconstruct a building for Waltons to lease.
 *During negotiations, Waltons’ solicitors were advised that the final agreement had to be settled
‘in the next day or two otherwise it will be impossible for Maher to complete’ the rebuilding on
time.
 *Waltons’ solicitors then forwarded to Maher’s solicitors a new lease document incorporating
amendments, with covering letter stating that they believed Walton’s approval is forthcoming, and
that ‘we shall let you know tomorrow if any amendments are not agreed to’.
 *4 days later, Maher’s solicitor having heard nothing further, returned the documents duly signed
‘by way of exchange’.
 *Maher assumed that Waltons would had executed contract, and began reconstruction.
 *Waltons knew this and told its solicitors to ‘go slow’ on the Maher contract.
 *Waltons later told Maher that it did not wish to go with the agreement.
 No contract was concluded.
 Detrimental reliance: Waltons induced and encouraged Maher to act to their detriment, by
remaining silent when they knew that Maher was acting on the false assumption that they had a
concluded contract.
 Unconscionable conduct: Waltons was unconscionable because they chose to remain silent while
knowing that Maher was relying on the false assumption to his detriment.
 The Commonwealth v Verwayen
 *Verwayen, a navyman, was injured in ship collision, and sued under negligence.
 *Cth promised not to rely on a defence.
 *Cth later pleaded the defence to defeat Verwayen’s claim.
 Cth’s representations led Verwayen to believe that the defence would not be used, and he had
relied on those statements to his detriment  Cth estopped from going back on what it said.
 Mason CJ: Detriment was the added legal fees, incurred between the time of the statement and the
time the Cth sought to resile from them.  Damages is appropriate, not specific performance.
 Difference between 2 forms of detriment:
 Detriment required to establish good consideration is a detriment of the promisee requested by the
promisor.
 Detriment required to establish promissory estoppel is something which follows naturally from the
promisee acting on reliance of the promisor’s promise.
PRIVITY OF CONTRACT
 Doctrine of privity: A contract can neither confer rights nor impose obligations on any person except the
parties to it.
 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd: If A promises B to pay a sum of money to TP,
the doctrine of privity prevents TP from suing for that sum.
 Wilson v Darling Island Stevedoring & Lighterage Co Ltd: If a contract between A and B contains a
term purporting to exempt TP from tortious liability to A, the doctrine of privity may prevent TP from
relying on that term.
 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd: Future of the privity rule in Australia is
uncertain.
 ‘Exceptions’ to the privity doctrine.
Agency
 When an agent enters a contract on behalf of a principal, the principal, not the agent, is a party to the
contract.
 Doctrine of the undisclosed principal: A third party can enforce (and be bound by) a contract if he can
show that a contracting party was acting as TP’s agent, even though this was unknown to the other
contracting party.
Trusteeship
 Where A promises B that A will confer a benefit on TP, B holds the benefit of A’s promise on trust for
TP  B is a trustee for the TP.
 The TP beneficiary may, by proceedings in equity against the trustee B, compel the trustee to
enforce the contract for the benefit of the beneficiary.
 Whether a contracting party has constituted himself as a trustee is a question of that person’s
intention (Trident v McNiece).
Property law regarding easements and covenants on land
 Tulk v Moxhay (?): Easements and covenants restrictive of the use of land, if appropriately created,
benefit and burden not only the immediate parties of their creation, but also TP successors in title.
Statutory Exceptions
 Insurance Contracts Act 1984 (Cth) s48
 Manufacturers Warranties Act 1974 (SA) s4(1): Where any manufactured goods are (a) sold by retail
in SA, or are (b) delivered, upon being sold by retail, to a purchaser in SA, the manufacturer warrants
(c) that the goods are of merchantable quality, and (d) where the goods are of a kind that are likely to
require repair or maintenance, that spare parts will be available for a reasonable period after the date of
manufacture.
 Remedies.
 Privity doctrine: Only contracting parties are entitled to sue for damages or specific performance,
exercise remedies provided by the contract itself, or terminate for breach or repudiation.
 Beswick v Beswick: Specific performance is an appropriate remedy for breach of a contract to benefit a
TP.
 *Man sold business to nephew, in consideration of the nephew’s promise to pay the man’s wife a
weekly amount for life after the death of the man.
 *The wife was not a party to the contract.
 *After man’s death, the wife sued the nephew for the annuity in both her personal capacity and as
administrator of the deceased’s estate.
 Wife has no right to sue in her personal capacity because she was not a party to the contract.
 Wife, in her capacity as administrator (and therefore legal representative of the deceased), was
entitled to enforce the contract.
 Specific performance ordered because nominal damages would be unjust  Wife benefited in fact
in her capacity as third party beneficiary.
 Coulls v Bagot’s Executor and Trustee Co Ltd (Windeyer J): If the promisee suffers loss through the
promisor’s failure to benefit the TP, the promisee can recover more than nominal damages.
 Exemption clauses for the benefit of TP.
 Scruttons Ltd v Midland Silicones Ltd (Lord Reid): TP servants, agents and independent contractors
can take advantage of the contract’s exemption clause if:
 Contract made it clear that the clause was intended to protect TPs;
 Carrier was clearly contracting not only on its own behalf, but also as an agent for the TPs that the
clause will apply to the TPs;
 Carrier had authority from the TPs to do that, or the TP later ratified it; and
 There is consideration moving from the TP (for the promise of exemption).
 The Eurymedon: Lord Reid’s 4 requirements in Midland Silicones apply.
 Lord Reid’s 4 requirements in Midland Silicones were satisfied  Stevedores entitled to the
benefit of the exemption clause.
 The New York Star
 *Contract between Shipowner and Consignee contained the exclusion clause that TP Stevedores is
not liable for negligence.
 *Stevedores finished unloading the goods.
 *Stevedores then negligently misdelivered Consignee’s goods to an unauthorised person.
 Contract containing the exclusion clause ended when unloading was completed.
 Since the loss occurred after the unloading was completed, the exclusion clause no longer covered
the Stevedores.
 Life Savers (Australasia) Ltd v Frigmobile Pty Ltd: Principles adopted in The Eurymedon can be
extended from carriage of goods by sea to carriage of goods by land.
 *Contract for carriage contained a clause excluding liability for negligence of Subcontractor.
 *Subcontractor negligently damaged goods.
 Lord Reid’s 4 requirements were satisfied:
 Contract made it clear that the Subcontractor was intended to be protected.
 Contract made it clear that the Carrier contracted on behalf of the Subcontractor.
 Subcontractor accepted the goods for carriage upon the basis that he was exempted from
liability  Carrier had the necessary authority. Subcontractor’s ratification was sufficient
anyway.
 Subcontractor’s carriage constituted good consideration for the Consignor’s promise of
exemption from liability.
 London Drugs Ltd v Kuehna & Nagel International Ltd (Supreme Court of Canada): Third party
employees are directly entitled to the benefit of an exemption clause.
 *Contract limited liability of ‘the warehouseman’ for damage of a transformer to $40.
 *2 Employees negligently damaged the transformer.
 Employees only liable for $40, because:
 ‘warehouseman’ was clearly intended to refer not only to the employer, but also to employees
(because the equipment could only be moved by several people); and
 Even though the clause did not mention agency, a specific exception should be made to
privity: Employees clearly intended to be included by a clause are allowed to rely on it, when
(1) the damage they have caused was done in the course of their employment, and (2) they
were carrying out the very services for which the Pl had contracted with their employer.
TERMS OF A CONTRACT
UNCERTAINTY
 Courts are unwilling to declare agreements void for uncertainty.

‘Subject to finance’ & Ambiguity
 Meehan v Jones: (1) ‘Subject to finance’ clause is not uncertain; (2) If 2 or more meanings are possible,
the court determines the meaning intended.
 *Contract for sale of land contained the term ‘subject to… the purchaser receiving approval for
finance on satisfactory terms and conditions’.
 ‘Subject to finance’ clause  performance of the sale contract, rather than its existence, is
conditional on the obtaining of finance  agreement not void for uncertainty.
 ‘satisfactory’  meant satisfactory to the purchaser (subjective test)  no uncertainty.
Incomplete agreements: Omission of essential terms.
 Whitlock v Brew (‘reasonable terms’)
 *A lease agreement ‘upon such reasonable terms as commonly govern such a lease’.
 *The clause did not specify a means for determining the period or rent payable of the lease.
 No reasonable terms which govern such a lease exist  agreement void for uncertainty.
 Hall v Busst: A contract for the sale of land will be void if a specific price is omitted.
 *Contract for sale of land at a ‘reasonable price’.
 Reasonable price falls within a very big range for land  Void for incompleteness.
Illusory promise: Leads to uncertainty & lack of consideration.
 Placer Development Ltd v The Commonwealth: Where a promise is accompanied by words showing
that the promisor has a discretion of whether he will carry it out, there is no contract.
 *Cth promised to pay a subsidy to be ‘at a rate determined by the Cth from time to time’.
 No specified amount or basis of calculation, and no standard of a reasonable subsidy amount 
promisor has complete discretion of the amount  Cth’s promise is meaningless  No contract.
 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd: A contract providing that a term is to be
determined by a named 3rd party arbitrator is sufficiently certain to render the contract valid.
Promise to negotiate in good faith.
 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
 *‘The parties will forthwith proceed in good faith to consult together upon the formulation of a
more comprehensive and detailed joint venture agreement’.
 Kirby P & Waddell A-JA: A promise to negotiate in good faith may be enforced.
 Handley JA: A promise to negotiate in good faith is illusory and cannot be binding, since there are
no identifiable criteria of how negotiation in good faith is determined.
 Walford v Miles (House of Lords): An agreement to negotiate in good faith is unenforceable, because it
is inherently inconsistent with the position of a negotiating party.
 The unenforceable part of an agreement may be severed to make the rest of the agreement enforceable.
 Whitlock v Brew: If the uncertain clause is a material and inseverable part of the consideration, the
whole contract is void.
INCORPORATION
EXPRESS TERMS
(i) Contracts not in writing – Oral statements
 Whether an oral statement is incorporated as a term depends on the objective test of intention.
 If a reasonable person in the position of the representee would conclude that the representor intended to
guarantee his statement’s truth, it is a term (regardless of actual intention).
 Factors that determine intention:
Relative knowledge and expertise of the parties
 Oscar Chess Ltd v Williams
 *Def sold car to the Pl, a car dealer.
 *Registration book showed that it was a 1948 model, which the Def orally confirmed in good faith.
 *Pl later discovered it was a 1939 model.
 Pl, not the Def, possessed the special knowledge and skill to discover the true age of the car  Pl
not justified in relying on the Def’s statement as a guarantee  Not a term.
 Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
 *Def, a car dealer, sold a car to Pl.
 *Def said during negotiations that the car had travelled only 20,000 miles.
 *Car actually travelled nearly 100,000 miles.
 The Def had superior knowledge and expertise  both parties knew that the buyer would rely on
the statement  a term.
 Ellul v Oakes
 *Def advertised his property for sale, stating that the property has been sewered.
 *Pl relied on the statement to purchase it.
 Whether the property was sewered was within the knowledge of the Def, but not the Pl  Pl
justified in regarding the statement as a term.
Content of the statement
 The more important the content of the statement, the more likely that the parties intended it to be a
term.
Timing of the statement
 The shorter the interval between the statement and the entry into the contract, the more likely that the
parties intended it to be a term.
Evidence of written memorandum
 Oscar Chess Ltd v Williams: If an oral statement is recorded in writing, that is good evidence that the
statement was intended to be a term.
(ii) Contracts not in writing – Displayed statements
 Whether a displayed statement is incorporated as a term depends on notice.

 For a displayed statement to be a term, the Def must show that he did all that was reasonably necessary
to bring the statement to the attention of the Pl.
 Parker v The South Eastern Railway Co
 If a person receiving a ticket did not know that it contained writing, he is not bound by the terms
on the ticket.
 If a person receiving a ticket knew that it contained writing, he is bound by the terms on the ticket
if there is actual notice (he knew or believed that the writing contained terms) or constructive
notice (the ticket was delivered to him in a manner that indicates to a reasonable person in his
position that it contained terms).
 Factors that determine reasonable notice:
Type of document
 Causer v Browne
 *A docket containing an exclusion clause was given when a dress was left for cleaning.
 Def did not prove that the docket would be reasonably understood as containing terms  terms on
docket are not incorporated.
Timing of statement
 Thornton v Shoe Lane Parking Ltd: If there is no opportunity to see the statement until after the
contract is concluded, then it is too late to be incorporated.
Prior course of dealing
 Henry Kendall & Sons v William Lillico & Sons Ltd: A prior course of dealing between the parties may
establish notice for the later deal.
 *Pl orally bought contaminated food from Def.
 *Def later sent to the Pl a ‘sold note’ containing an exclusion clause.
 *The parties previously had 3 dealings a month for 3 years, with each dealing followed
immediately by the ‘sold note’ containing the same exclusion clause.
 *Pl never read any of the ‘sold notes’, but knew they contained terms.
 By continuing to conduct their business with the Def and not objecting to the terms on the ‘sold
note’, the Pl must be taken to have assented to the incorporation of these terms in the contract.
 DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd: Where a prior course of dealing exists, if the Pl was
previously unaware that the form contained contractual terms, these terms cannot be imported as terms
of the subsequent contract.
Content of statement
 Thornton v Shoe Lane Parking Ltd (Denning MR): A condition may be so wide and destructive of
rights that the court should not hold anyone bound by it, unless it is drawn to his attention in the most
explicit way.
 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd
 *Pl sent 47 transparencies to Def with a delivery note.
 *Across the bottom, under a prominent heading ‘CONDITIONS’, were 9 conditions.
 *Condition 2 specified that a holding fee of 5 pounds a day would be charged for each
transparency held longer than 14 days.
 *Def did not use any of the transparencies, and never dealt with Pl before.
 Def could not have known, if their attention was not drawn to the clause, that the Pl was charging
such a high ‘holding fee’.
 Pl did not draw the Def’s attention to the particular clause  it is a term of the contract.
 Def only liable for 3.5 pounds per week, assessed on a quantum meruit.
 Notice is irrelevant when the document forming part of the contract is signed.
 L’Estrange v Graucob Ltd: When a document containing contractual terms is signed, then, in the
absense of fraud or misrepresentation, the party signing it is bound, regardless of whether it has been
read or not.
 Curtis v Chemical Cleaning and Dyeing Co: If the person relying on the term (or his agent or servant)
misrepresents it, its effects will be restricted to that which it was expressly stated to be.
 *Pl asked why her signature was required on the receipt.
 *Assistant replied that it exempted the Defs from certain specified risks, including damage to
beads and sequins on the dress.
 *Document in fact stated ‘that the company is not liable for any damage, however arising’.
 *Pl signed, and the dress was returned stained.
 The assistant created the false impression that the exemption only related to beads and sequins,
which was sufficient misrepresentation to disentitle the Defs from relying on the exemption,
except in regard to beads and sequins.
(iii) Contracts in writing
 Parol evidence rule: Where a contract is entirely in writing, evidence is not admissible to add to or vary it.
 Exceptions to the parol evidence rule:
Evidence that there was no contract at all
 Pym v Campbell: The rule does not exclude evidence that a written agreement was not intended to be a
contract at all.
 *Evidence of an oral agreement that the written contract will not operate until approval of the
invention had been obtained from a third party
 This oral evidence was admissible.
Evidence that the parol evidence rule does not apply
 State Rail Authority of NSW v Health Outdoor Pty Ltd: Rule only operates when the terms of the
agreement are determined to be wholly in writing  Oral evidence is admissible to show that an
agreement is not wholly in writing.
Collateral contracts
 A collateral contract’s consideration is entry into another contract.
 Shepperd v Ryde Corp: The collateral contract must be truly collateral to the subject matter of the main
contract (ie. the collateral promise should not naturally be found in the principal contract).
 *Pl entered into a contract for sale of land because the Council orally promised that it would
maintain the land opposite as a park.
 *Council later chose to subdivide the land for housing.
 Since the Pl would not had entered the contract but for the oral promise, consideration for the
Council’s promise was the Pl’s entry into the contract of sale  prima facie collateral contract.
 Natural that the parties would treat the principal contract as devoted to the purchase of the lot, not
the stability of the project  promise was truly collateral to the subject matter of the written
contract.
 Hoyt’s Pty Ltd v Spencer: A collateral contract cannot be inconsistent with the main contract.
 *Lease contract contained a term that the Lessor can terminate the lease anytime by giving at least
4 weeks’ notice.
 *Lessee alleged that Lessor orally promised not to terminate the lease unless required by his head
lessors to do so, and sought to use the promise as a basis for a collateral contract.
 The alleged collateral contract was inconsistent with the main contract (one allowed termination at
Lessor’s free choice, while the other does not)  no collateral contract inferred by court.
 JJ Savage & Sons Pty Ltd v Blakney: Collateral contracts must be promissory in form, not merely
representational.
 *Pl entered contract to buy motor cruiser from Def.
 *Prior to agreement, Def represented by a letter of recommendation that the vessel’s ‘estimated
speed’ was 15mph.
 *In fact, its maximum speed was 12mph.
 ‘estimated speed 15mph’ indicates an opinion of the approximate speed  no element of

guarantee  no promise  no collateral contract.
IMPLIED TERMS
 Terms implied in fact – terms needed to give business efficacy to a contract.

 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council: To imply a term in fact, (1) it must be
reasonable and equitable, (2) it must be necessary to give business efficacy to the contract, (3) it must
be so obvious that it goes without saying, (4) it must be capable of clear expression, and (5) it must not
contradict any express term of the contract.
 However, in informal contracts, these elements of implication are not as rigid. (Byrne v Australian
Airlines Ltd)
[Note: onus of proof is on the party alleging the implication]
 Terms implied in law – obligations that the law imposes on particular types of contracts, in the absence of
a contrary intention from the parties.
 Liverpool City Council v Irwin: There is a necessary implication in tenancy agreement that the council
was obliged to take reasonable care in keeping the essential means of access in reasonable repair.
 Terms implied by statute
 TPA ss69-72, 74 [CB 6.134 – 141].
 Consumer Transactions Act 1972 (SA) ss8, 9.
 Sales of Goods Act 1895 (SA) ss12-15.
 Also see Misrepresentation Act 1971 (SA) s8.
[Note: onus of proof is on the other party to show that the implied term hasn’t been breached]
 Terms implied by custom or usage
 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd: Four propositions on
implying terms by custom or trade usage:
 Implication is a question of fact.
 Custom relied on must be so well known and acquiesced that everyone making a contract in that
situation can reasonably be presumed to have imported that term into the contract.
 Implied term cannot be contrary to the express terms of the contract.
 A person may be bound by a custom even though he has no actual knowledge of it.
INTERPRETATION
General
 A contract is construed to give effect to the intention of the parties. Intention is assessed objectively 
What would a reasonable person in the position of the parties would have taken as their intended meaning?
 For contracts not entirely in writing, evidence of intention is at large.
 For contracts entirely in writing, evidence of intention is not admissible (Parol evidence rule).
 Rules of construction:
 Words in a written contract are given their ordinary literal meaning in context.
 The literal meaning can be departed from if it involves absurdity or would create inconsistency with the
rest of the document.
 A meaning resulting in the contract being effective is preferred to one which would render the contract
ineffective.
 If the context shows that words are used in a special sense (technical, commercial or customary), then
that will prevail over the ordinary meaning (Smith v Wilson).
 Ambiguity in a written contract can be resolved by looking at the surrounding circumstances.
 Prenn v Simmonds: Evidence of prior negotiations (which reflect the parties’ actual intentions and
expectations) cannot be used to aid interpretation of written contracts (unless they establish objective
background facts that are known to both parties and the subject matter of the contract).
 Codelfa Construction Pty Ltd v State Rail Authority of NSW: Notwithstanding the parol evidence rule,
evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the
language is ambiguous or susceptible of more than one meaning.
Exclusion Clauses
 Darlington Futures Ltd v Delco Australia Pty Ltd: The exclusion clause is interpreted by construing the
clause according to its natural and ordinary meaning, read in light of the contract as a whole, and construing
the clause contra proferentem in case of ambiguity.
 Contra proferentem rule: An exclusion clause is construed strictly against the party relying on the clause.
No express reference to negligence.
 Alderslade v Hendon Laundry Ltd: If negligence is the only basis of the Def’s liability, then general
words of exemption will cover liability for negligence.
 *Pl left 10 handkerchiefs for Def to wash.
 *Def negligently lost them.
 *A clause of the contract provided: ‘The maximum amount allowed for lost or damaged articles is
20 times the charge made for laundering’.
 *Pl’s loss was much more than that.
 Since the Def’s only obligation (as bailee) is to take reasonable care, the clause is construed to
cover loss by negligence (because it would lacking content otherwise).
 White v John Warrick & Co Ltd: If the words of an exemption clause are wide enough to cover 2
possible heads of liability, it will be construed as exempting the Def from liability in contract, but not
from liability in tort. The reason is that if a clause attempts to exempt liability which the law imposes, it
must do so in words that are clear beyond the possibility of misunderstanding.
 *Contract for hire of bicycle provided that the Defs were not liable ‘for any personal injuries to the
riders of the machines hired’.
 *Bicycle seat was defective and Pl was injured.
 *Pl sued for both breach of contract and in the tort of negligence.
 Since the clause did not expressly refer to negligence, the Def is taken not to have intended it to
cover negligence  it exempted liability in contract only, not in tort.
 Davis v Pearce Parking Station Pty Ltd: If the ordinary meaning of the exemption clause (interpreted
in light of the circumstances of the case) fairly covers negligence, then it is effective to do so.
 *Pl parked car at Def’s parking station.
 *Pl paid a fee and received a receipt, containing a term that the car was ‘garaged at owner’s risk’,
and that the Def would ‘not be responsible for loss or damage of any description.’
 *Def negligently placed car near a public street without removing the ignition key.
 *Car was stolen, and later found damaged.
 (1) Def would not normally be liable for loss or damage occurring without negligence, and (2) Def
was making a small charge for custody of goods with great value  Both parties would have
intended exemption from heavy liability arising through negligence  Exemption clause covered
negligence.
Four Corners rule - An exclusion clause does not cover conduct performed outside the four corners of the
contract.
 Sydney Corp v West: Unless the exclusion clause expressly states otherwise, it has no application where
the defendant, as bailee, had negligently dealt with the plaintiff’s goods in a way that was neither
authorised nor permitted by the contract.
 *Pl parked car at Defs’ car park, and received a ticket which stated that it must be presented before
taking the car away.
 *Ticket had terms excluding liability of the Defs for the ‘loss or damage to any vehicle… however
such loss, damage or injury may arise or be caused’.
 *Rogue used a duplicate ticket to drive Pl’s car away.
 *Car was later found damaged.
 Attendant’s delivery of the car to a rogue upon presentation of a fake ticket was unauthorised.
 Def, as bailee, negligently dealt with the Pl’s goods in a way that was neither authorised nor
permitted by the contract  performance was outside the 4 corners of the contract  exclusion
clause does not cover the loss caused by that performance.
Deviation – Departures from a carrier’s geographical route, or radical breaches of his contract.
 TNT Pty Ltd v May v Baker Ltd: A carrier cannot rely on an exemption clause for loss occurring during
or after the deviation from the contract (unless the same loss would had occurred anyway).
 *Pl contracted with TNT (carrier) for carriage of goods.
 *TNT’s subcontractor collected Pl’s goods and stored them in his garage overnight because TNT’s
depot was closed (this was in accordance with TNT’s practice).
 *The shed caught fire that night, damaging the goods.
 TNT implicitly undertook to exercise reasonable care for the safety of the goods during the
journey.
 Implicit in the contract that such valuable goods would be stored in TNT’s depot, not in a
subcontractor’s home  Subcontractor’s act was an unauthorised departure from the terms of the
contract.
 *Clauses in the contract provided that the Pl accepts all ‘responsibility for any damage or loss of
any goods’ while in the carrier’s custody; and that ‘no responsibility’ was accepted by the carrier
‘for any loss of, or damage to’ the goods ‘either in transit or in storage for any reason whatsoever’.
 These clauses did not exclude liability for the damage which occurred after the breach by
deviation.
 Statutory controls on exemption clauses
 Misrepresentation Act 1971 (SA) s8 [CB 10.111]
 Fair Trading Act 1987 (SA) s96
 TPA ss68+68A [CB 7.157-160]
 Consumer Transactions Act 1972 (SA) s10(1)
MISREPRESENTATION
A misrepresentation is a misstatement of past or existing fact, addressed to the party misled before or at the time
of contracting, that induces entry into a contract.
Misrepresentation must be factual
 A statement of opinion/intention is not normally regarded as a statement of fact. However, if the representor
implied that he knew facts which justified that opinion, the opinion can imply a statement of fact (Smith v
Land & House Property Corp).
 Edgington v Fitzmaurice: A misstatement as to the state of the representor’s mind is a misstatement of
fact.
 *Prospectus stated that money borrowed would be used on improvements to the buildings of the
company and to extend the business.
 *Pl was induced to subscribe for the debentures by the statement.
 *Actually, the loan was always intended to pay off existing liabilities.
 *Pl sued to recover money he subscribed.
 Statements of intention (and opinion) imply that the state of the maker’s mind is consistent with
them.
 The directors never intended to use the money in the manner specified  misstatement of fact.
 A promise/assurance for the future cannot be presently true or false, and is therefore not normally a
statement of fact.
 Balfour v Hollandia: A statement expressed in future tense can be a representation of existing fact.
 *Agent for a vendor of land told prospective purchasers that in 2 years’ time, they would be able to
borrow from a particular building society an amount equal to 90% of the land value, secured by a
first mortgage only.
 *Representation was false because a vital element of the lending terms was never disclosed.
 Representation of existing fact was made, (1) as to the existing policy of the building society and
(2) as to the agent’s state of knowledge of that policy.
 A misstatement of law can amount to misrepresentation.
 Cockerill v Westpac
 *Westpac stated that it was legally entitled to appoint receivers and sell businesses owned by the
Pl.
 A representation as to a person’s private rights is a statement of fact which, if false, will constitute
actionable misrepresentation.
 David Securities Pty Ltd v CBA: Promissory estoppel makes no distinction between statements of law
and fact  So the law of misrepresentation should not make the distinction too.
 A person who makes an assertion also makes an implied assertion that they believe the assertion is true. So
if the person does not believe the assertion to be true, the implied assertion is a misrepresentation of facts
about the speaker’s state of belief.
Fraudulent and innocent misrepresentations
 Fraudulent misrepresentation  tort of deceit

 Derry v Peek
 Misrepresentation is fraudulent if the false statement has been made knowingly or without belief in
its truth.
 Misrepresentation is not fraudulent if the speaker honestly believed in the truth of the statement
(no matter how unreasonably).
 Musca v Astle Corp: If a fraudulent misrepresentation displayed a total disregard for the Pl’s rights,
there is compensation for loss and exemplary damages.
 *Def falsely represented to Pl that a professional market survey indicated that:
 a florist shop was at the top of local needs,
 there had been commitments to take up leases in all but two of the shops in the arcade, and
 the proposed florist shop would make enough to cover costs.
 *The representations induced the Pl to enter the lease agreement.
 The Def’s fraud displayed a considerable disregard for the Pl’s rights  Pl was entitled to
exemplary damages.
 Negligent misrepresentation  tort of negligence

 Innocent misrepresentation (misrepresentation without fault)  rescission
Silence as misrepresentation
 Statements partially true.

 Balfour v Hollandia: A partial truth can often imply a misstatement of fact.
 *Agent told purchasers only some of the terms of a loan.
 Although the agent’s representation was literally true, it was incomplete and therefore implied that
those were the only terms.
 This implied representation of fact is false  can be misrepresentation.
 Statements becoming untrue.
 With v O’Flanaghan: If a true statement becomes false before the contract arises, and the statement is
relied on, then the statement is a misrepresentation.
 *Pl wanted to buy Def’s medical practice.
 *Def doctor represented that it produced 2000 pounds per year, which was correct at the time.
 *4 months later, Pl signed the contract of sale, but the statement was no longer true.
 *Def had remained silent.
 The originally true statement of fact continued through time, and became false.
 Reliance on a misstatement of fact  misrepresentation.
 Concealment without statements.
 Schneider v Health: Deliberate concealment of defects or creation of false impressions is fraudulent
misrepresentation (if there is reliance).
 *Def sold a ship to Pl.
 *Before the sale, Def moved the boat from the dry dock and kept it afloat so that its defects were
concealed.
 Fraudulent concealment  Pl entitled to recover his deposit and rescind the sale.
 Gill v McDowell: Utilising a fraudulent object without qualifications is fraudulent misrepresentation (if
there is reliance).
 *Pl thought he was buying a normal cattle from Def.
 *Cattle partook both sexes.
 *Def said nothing about its sexuality.
 Def utilised the fraudulent cattle  misrepresentation.
 Imposed duties to disclose.
 Insurance contracts: Duty to disclose all facts that are reasonably material to the decision of
undertaking the insurance. (Insurance Contracts Act)
 Guarantee contracts: Duty on creditor (bank) to disclose to the guarantor anything which is not
naturally expected in the relation between the debtor and creditor. (CBA v Amadio)
 Contracts between parties in a fiduciary relationship: Duty on the fiduciary to fully disclose.
Non-disclosure renders the contract voidable.
 Also see unconscionable silence & unilateral mistake.
Misrepresentation must induce entry into the contract to be actionable.
 Onus of proving reliance lies with the Pl, but if there is fraudulent misrepresentation, it is presumed that
there is reliance.
 Edgington v Fitzmaurice: Misrepresentation need not be the sole or decisive inducement, but it needs
to materially affect the representee’s decision to contract.
 Holmes v Jones: If the Pl knew that the statement was false before entering the contract, then the
misstatement cannot be said to induce entry into the contract.
 *Def offered to sell pastoral land to Pl.
 *Def made falsely stated the number of stock on it.
 *Pl refused offer, and sent an agent to inspect the property and stock.
 *Pl relied on the agent’s report to make a fresh offer with different terms.
 Since Pl had relied on his own judgement (or that of his agent), he did not rely on the previous
representation made by the Def.
 Redgrave v Hurd: The mere fact that a party has the opportunity of investigating whether a
representation is true or false is not sufficient to deprive him of his right to rely on the
misrepresentation.
 *Def offered sale of his legal practice and house to Pl.

 *Def misrepresented the gross earnings of the practice as being 300-400 pounds per year.
 *Def showed summaries indicating 200 pounds per year instead.
 *Def gave Pl papers showing the remainder, but Pl did not examine them.
 *Pl paid deposit.
 *In fact the papers only showed a tiny amount of earnings.
 Even though the Pl could easily have avoided reliance on the statement, he can still rely on it to
enter the contract. Def could not displace presumption of inducement  misrepresentation.
Remedies of misrepresentation
Rescission
 The party induced by the misrepresentation to enter the contract is entitled to rescind the contract ab initio
by giving notice.
 Alati v Kruger: If the Pl cannot substantially return the consideration received under the contract,
complete rescission cannot be granted.
 *Pl induced to purchase a fruit shop business from Def by misrepresentation.
 *Pl commenced proceedings for rescission.
 *Pl continued to carry on the business for several months, but closed it down before judgement
was given.
 *As rescission is discretionary, is it fair to grant it in this case?
 Pl did not act unfairly, because (1) the Pl is not expected to continue incurring losses after the
judge had announced findings of fact in his favour, and (2) the Def had ample opportunity to
protect his interests  Pl was entitled to rescind the contract ab initio.
 Vadasz v Pioneer Concrete: Rescission may be partial, if it is practically just for both parties.
 *Vadasz signed a guarantee to pay ‘all monies which are now or may at any time’ be owing to
Pioneer.
 *Pioneer sued for future and existing indebtedness.
 *Pioneer had misrepresented to Vadasz that the guarantee was only for future indebtedness as at
the date of signing the guarantee.
 To enforce the guarantee to the extent of the future indebtedness was to do no more than hold
Vadasz to what he was prepared to undertake independently of any misrepresentation  Vadasz
could rescind the guarantee as regards past indebtedness only.
 Rescission is discretionary.
 S7(3) Misrepresentation Act: The court may, if it considers it ‘just and equitable’ to do so, award ‘fair
and reasonable’ damages in lieu of rescission to a party who has been induced to enter a contract by
misrepresentation.
 Barriers to rescission.
Intervention of third party rights
 S6(2) Misrepresentation Act: Once an innocent 3rd party has gained title to the property, the original
owner cannot rescind the contract with a fraudulent rogue.
Affirmation of the contract
 Affirmation can be implied from acts inconsistent with an intention to rescind.
 JAD International v International Trucks: A party must have knowledge of the falsity of the
representation to affirm a contract.
Damages
 S7(1) Misrepresentation Act
 Those induced to enter a contract by misrepresentation can recover damages in tort from the person
who made the misrepresentation (regardless of whether that person was another contracting party, an
agent of another contracting party, or a third party).
 Compensation awarded under this section is to restore the Pls to their original positions.
 S7(2) Misrepresentation Act: Defences to Defs who prove:
 The Def had reasonable grounds to believe, and did believe, that the representation was true.
 The representation was made by a third party, in circumstances where the Def could not reasonably
have known of the representation’s existence or falsity.
 S8 Misrepresentation Act:
 Any provision that attempts to exclude or restrict any liability or remedy arising by reason of a
misrepresentation, can only be relied upon to the extent that the court considers fair and reasonable.
MISLEADING AND DECEPTIVE CONDUCT
S56(1) FTA: A person shall not, in trade or commerce, engage in misleading conduct.
S84 & s85 FTA provide remedies to those who suffer loss or harm as a consequence of breaching s56(1).
‘In trade or commerce’
 This phrase was intended to exclude conduct which is not of a business nature.
 Concrete Constructions v Nelson: The conduct must itself be an aspect of activities that bear a trading
or commercial character.
 *Foreman gave a careless hand signal to a worker on a construction site.
 *Resulted in injuries to Pl worker.
 ‘in trade or commerce’ refers only to conduct which is itself an aspect of activities which, of their
nature, bear a trading or commercial character. It does include activities which are merely
undertaken in the course of, or incidental to, the carrying on of an overall trading or commercial
business.
 Hand signal was an aspect of internal communication between employees, which does not bear a
trading or commercial character.
 Examples of conduct ‘in trade or commerce’:
 Franich v Swannell: Individual selling a family home was not in trade or commerce.
 Bevanere v Lubidineuse: Company selling its only capital asset (beauty salon business) was in trade or
commerce.
 Tobacco Institute of Aust Ltd v Woodward: Institute’s advertisement about passive smoking effects was
in trade or commerce, because it was calculated to protect the cigarette market.
‘Conduct that is misleading or deceptive’
 S46(2) FTA: ‘Conduct’ refers to doing or refusing to do any act.

 How to classify conduct as misleading?
 Brown v Jam Factory: Effect should be given to the ordinary meaning of the words used. ‘To
mislead’ means ‘to lead into error’.
 Representations (promises and predictions)
 S54 FTA: If a person makes a representation with respect to any future matter, it is taken to be
misleading unless that person proves that he had reasonable grounds for making it.
 Futuretronics International v Gadzhis: A party who enters a contract, and is unable to establish that he
had the intention and ability to perform the contract at the time of contracting, is taken to engage in
misleading conduct by s54 FTA.
 *Def made the only genuine bid for the Pl’s property, which was accepted by dropping of hammer.
 *Def then refused to sign the contract for sale.
 *Pl sued for specific performance or damages.
 Def, by bidding, made a representation as to his future conduct of signing the contract  Def
deemed (by s54 FTA equivalent) to have no reasonable grounds for making the bid.
 Def did not adduce evidence that he had money to pay for the deposit  Def could not prove
reasonable grounds for making the bid.
 Def engaged in misleading conduct.
 Whether conduct is misleading depends on its effect on the audience that the conduct was addressed to.
 Parkdale v Puxu: Proof that people were actually misled is not necessary.
 Finucane v NSW Egg Corp: Assess the effect of the conduct on a person of less than average
intelligence and background knowledge, but not someone unusually stupid.
 *Finucane bought an egg run through the Def.
 *Finucane was made aware that there was no guarantee of continuing existing arrangements.
 *Def did not tell F that egg carriers were being phased out, and that F’s arrangement would
probably be among the first to be terminated.
 *Pl’s engagement with the Def was eventually terminated.
 F fell within the class of persons who were likely to be misled by the Def’s conduct  misleading
conduct.
 Parkview v Mytarc: Application of principles.
 *Def advertised in a brochure distributed to travel agents only.
 *Pl alleged that the Def had represented sponsorship, approval and affiliation which it did not
have.
 Travel agents were the relevant audience  audience is generally well informed and educated 
very few travel agents could possibly be misled  conduct not misleading.
 Silence that leads people to believe that there is nothing wrong, when there really is, amounts to misleading
conduct.
 Demagogue v Ramensky: ‘Reasonable expectation test’ - If the circumstances give rise to a reasonable
expectation that some relevant fact would be disclosed, then non-disclosure of that fact constitutes
misleading conduct.
 *Purchaser of land was not informed by Vendor that the driveway to it could not be legally
accessed.
 Vendor’s failure to disclose this information constituted misleading conduct.
 Franich v Swannell
 *Owner of land, S, offered land for sale.
 *Engineer’s report gave the false impression that the foundation problems of the house had been
overcome.
 *There were obvious signs that the foundations of the house had moved since construction, and S
had not attempted to conceal them.
 *Purchaser entered the contract in ignorance of the report.
 *Purchaser then became aware of the report, and declined to proceed with the sale.
 S’s non-disclosure of the defects in quality of the house constituted misleading conduct.
 (Sale by S of a private house, without any business character, was not conduct in trade or
commerce.)
 Henjo Investments v Collins Marrickville
 *Def vendor sold restaurant to Pl purchaser.
 *Def’s agent correctly told Pl’s agent that the restaurant seated 128 people.
 *But due to licencing restrictions, it could only lawfully serve 84 people.
 (false) These circumstances gave rise to the vendor’s duty to reveal the true position of the lawful
seating capacity to the purchaser before contract  vendor’s silence constituted misleading
conduct.
 Overlap of breach of contract and misleading conduct.
 Accounting Systems v CCH: The making of a statement in the terms of a contract as to existing states of
affairs may, if false, amount to misleading conduct (without any other conduct).
 *Accounting Systems expressly warranted in the contract that CCH was entitled to assign
copyright without consent of any other person.
 *In fact, CCH needed consent of another company.
 The mere giving of an inaccurate written warranty in the contract constituted misleading conduct.
 (Can overcome effects of privity)
Causation and reliance
 s84 & s85 FTA requires the Pl to prove that his loss was caused by the Pl’s or a TP’s reliance on the Def’s
misleading conduct.
 Actus Australia v Actus Australia: Misleading conduct need not be the sole cause of the loss or damage;
being a contributing cause is sufficient.
 Saints Gallery v Plummer
 *Purchaser Pl bought paintings from Def gallery owner.
 *Paintings were forgeries.
 *Pl sued, alleging that the Def’s statements as to the identities of the artists were misleading.
 *Pl was a professional art valuer and dealer, while Def rarely dealt in work of famous artists.
 Pl knew that Def lacked the ability to determine authenticity of work  he placed no reliance on Def’s
statements as to authenticity.
 Also, there was a disclaimer of personal knowledge of the paintings’ authenticity.
 Disclaimers and exemption clauses can possibly indicate no reliance.
 Henjo Investments v Collins Marrickville: Inducement is not negated simply because the parties said
the contrary in the agreement itself.
 *Clause 6 – Purchaser has not relied on any statement, representation or warranty by or on behalf
of Vendor.
 *Clause 7 – The contract constituted the whole of any promises, representations, warranties and
undertakings.
 It is against public policy for such exclusion clauses to deny or prohibit the statutory remedies
offered  They did not operate to defeat a claim under s52 TPA.
 Oraka v Leda Holdings: A representation can still be relied on where a contractual term specifies that
there is no reliance.
 *Def shopping centre contacted Pl franchisee regarding a lease.
 *Def told Pl that the centre will be almost fully occupied when it opened.
 *Pl entered the lease.
 *Centre was only half occupied when it opened, and Pl suffered losses.
 Misleading conduct.
 *Lease contract contained clauses that the Pl was not induced by and did not rely on any
representations made to it.
 The very agreement that was obtained by a misrepresentation cannot be made good by
incorporating in it a further misrepresentation falsely asserting that it was not induced by means
which were in fact employed  The exemption clauses were not effective in excluding reliance.
Remedies for misleading or deceptive conduct
 Rescission & variation of contracts

 S85 FTA: If a person suffers, or is likely to suffer, loss or damage by reason of contravention of s54
FTA, the court may make certain orders for the purpose of compensating that person, or preventing or
reducing the extent of the loss or damage, against the person who contravened that section or any
person involved in the contravention.
 Contracts resulting from misleading or deceptive conduct can, at the discretion of the court, be varied
or rescinded, in whole or in part.
 Damages
 S84 FTA: A person who suffers loss or damage by conduct of another in contravention of s54 FTA
may recover the amount of loss or damage from that other person or any person involved in the
contravention.
 Marks v GIO Australia Holdings: Provided there is a causal link, the injured party can recover the loss
of reliance (not loss of bargain).
 Musca v Astle: Exemplary damages do not compensate loss and are therefore not recoverable under s84
FTA.
 ‘Loss or damage’
 S52 FTA: ‘Loss or damage’ includes injury.
 Holloway v Witham: Injury includes psychic injury, trauma and distress.
 *Def contracted to move 13 houses to stipulated locations.
 *Def represented that he would deliver each house within a certain time, and in the same condition
as it was before removal.
 *Def failed to fulfil all those representations and the contracts.
 *Pl commissioner sued to obtain compensation on behalf of those who suffered.
 *Can damages be awarded for mental distress, vexation and inconvenience due to the Def’s
misleading conduct?
 In our community, the acquisition of a home is a significant event in the life of most persons,
particularly married couples and where the purchase requires a loan.
 When the houses were delivered much later than promised & were not habitable, the people
suffered mental distress, frustration and inconvenience which demands modest compensation.
UNCONSCIONABILITY
UNCONSCIONABLE CONDUCT
 CBA v Amadio: 3 requirements necessary for a finding of unconscionable conduct:

 A party was under a special disability in dealing with the stronger party, so that there was no
reasonable degree of equality between them.
 The stronger party knew of the disability.
 The stronger party took unconscionable advantage of the disability.
1) Special disability (Pl must prove)
 Blomley v Ryan (Fullagar J): Special disabilities are of great variety, and can hardly be satisfactorily
classified.
 Among them include poverty, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy,
lack of education, and lack of assistance or explanation where they are necessary.
 Also emotional dependence (Bridgewater v Leahy) & infatuation (Louth v Diprose).
2) Knowledge (Pl must prove)
 CBA v Amadio (Mason J): The requirement of knowledge of special disability is met where:
 The stronger party had actual knowledge of the disability,
 The stronger party is aware of the possibility that the disability may exist, or
 The stronger party is aware of the facts that would raise the possibility of the disability’s existence to
the mind of a reasonable person.
3) Unconscionable advantage was taken of the disability (Presumed)
 CBA v Amadio (Deane J): It is presumed that procurement of the agreement by the stronger party would be
unfair or unconscientious, unless the stronger party shows that the transaction was ‘fair, just and
reasonable’.
Examples
 Blomley v Ryan (age, drunkenness, lack of independent advice)

 *Ryan was 78, alcoholic. Drunk himself into insensibility.
 *Next morning, Blomley’s agent found Ryan sprawled on the bed, and invited him to drink rum.
 *Agent asked for price. Ryan immediately said 25,000 pounds, which was 9,500 pounds below market
value.
 *Ryan signed without independent advice.
 *Blomley sued for specific performance.
 Def was not so drunk that he did not really know what he was doing  can’t plead non est factum.
 His declining mental equipment and drunkenness were special disabilities.
 Ample indications to Blomley that Ryan was in no condition to transact business.
 Pl took unfair advantage of Def’s disabilities  contract was set aside.
 Bridgewater v Leahy (age, emotional dependence)
 *Bill feared that his farm holdings would be broken up if they passed to his son-in-laws.
 *So Bill sold part of his farm plus options for the remainder to his nephew Neil at a bargain.
 *At time of sale, Bill was 84; a fragile elderly man of sound mind.
 *Neil had suggested the price, but Bill knew the true value and willingly accepted.
 *After Bill’s death, his daughters, as legal representatives, sought to set aside the contract.
 Special disability is being an old man who has a distorted perspective of modern values (he thought
that keeping his land together is more important than his family).
 Neil’s conduct was unconscionable, even though he had not done anything oppressive  Neil could
keep the property, but must pay more.
 Louth v Diprose (infatuation)
 *Diprose offered $58,000 to Louth to buy a house for herself and her children, because he thought she
loved him.
*Louth accepted gift, but later revealed that she didn’t love him.
*Diprose sued to recover the property.
The relationship put Diprose in a position of severe emotional dependence; Louth knew of this
infatuation; and exploited it ruthlessly. Therefore it was unconscionable for her to retain the benefit of
the gift  Diprose could recover the property.
 CBA v Amadio (age, poor English, lack of independent advice, misled)
 *Elderly couple guaranteed debts of their son to a bank.
 1)*They were old (76, 71), had poor written English, had no independent advice.
 1)*Prior to signing, Vincenzo told them that the guarantee would be limited in time and amount, but in
fact it wasn’t.
 2)*Bank manager was aware that the Amadios relied on their son as the ‘dominant member of the
family’, that Vincenzo’s explanation of the guarantee may not be truthful, and that the Amadios
probably had no independent advice.
 2)*Amadios commented to the manager that the guarantee was only for 6 months, which the manager
corrected.
 *Son’s company collapsed, and bank demanded massive payment.
 1) Combination of age, poor written English, lack of knowledge & understanding of the contents of the
document, and lack of independent advice resulted in a special disability, so that there was no
reasonable degree of equality between them and the bank.
 2) Bank manager must had some awareness of their poor English. Furthermore, the Amadios’ comment
would have revealed to any reasonable person that the guarantee had not been properly explained to the
Amadios. Since a reasonable person would had known of this disability, the bank manager was taken to
have known it.
 3) Unconscionable advantage was taken of the disability by the bank, because the Amadios obtained no
benefit from the guarantee, the bank manager knew that Vincenzo’s company would collapse, and a
reasonable person would had realised that the Amadios didn’t understand the actual effects of the
guarantee. (This step would be presumed anyway)
 Amadios entitled to set aside the contract.
Special case – no actual disability, no actual or constructive knowledge of disability
 Garcia v National Bank (wife didn’t understand guarantee, no explanation by bank, guarantee not for
personal gain): Unless the lender takes steps to explain to the wife the effects of her consent to guarantee
her husband’s debts, it will be unconscionable for the lender to enforce the security if in fact the wife did
not understand it.
 *Wife guaranteed debts of her husband’s company.
 *Husband did not pressure wife into signing, but he misled her into thinking that there was no risk
involved.
 *Although she was a director, she had no influence over the company.
 *She was a capable, professional woman who worked as a physiotherapist.
 *When she signed the guarantees in the presence of a bank officer (taking less than a minute), the
officer didn’t explain its effect.
 *Wife didn’t know that the guarantee was secured by a mortgage over her home.
 *1 year later, they separated, and 1 year later, the business collapsed. Bank sought to enforce the
security.
 *Wife sought to set guarantees aside.
 There is a relationship of trust and confidence between marriage partners, so it is not unusual that the
explanation of a transaction given by one to the other will be incomplete or wrong.
 Any lender is taken to have known this, and so cannot plead ignorance of a wife’s lack of
understanding.
 No explanation by bank + Wife didn’t understand that the guarantee was secured over her home 
Unconscionable for the lender to enforce the security  guarantee set aside.
 Majority were prepared to extend the protection beyond wives to other intimate relationships, eg.
defacto or homosexual.
 (But – explaning the effect of the guarantee probably would not give the wife any choice anyway)
MISTAKE
 Mutual mistake: If, from the standpoint of the reasonable objective observer, the parties did not agree about
the same subject matter, then offer and acceptance did not coincide  no formation of contract 
agreement is void.
 Raffles v Wichelhaus
 *Parties entered contract for sale of cotton to arrive ‘ex Peerless from Bombay’.
 *In fact, there were 2 ships leaving Bombay by that name, one in October & the other in
December.
 *Buyer intended to contract for Oct shipment, seller meant the Dec shipment.
 *Seller sought to enforce the contract.
 Ambiguity & a reasonable objective observer cannot point to one meaning over the other  void
contract  Buyer not liable to pay.
 Unilateral mistake: When one party enters a contract under a fundamental mistake about the terms, subject
matter, or factual environment of the contract, and the other is actually or reasonably aware of that mistake,
then the mistaken party is entitled to rescind (Taylor v Johnson).
 Taylor v Johnson: Price error is a fundamental mistake.
 *Vendor granted an option to purchase 2 blocks of 5-acre land.
 *She mistakenly set a price of $15,000 for both properties, instead of $15,000 per acre as intended.
 *Purchaser avoided mentioning the purchase price, lied about not having a copy of the option, and
hurried the sale.
 Price stipulation is a fundamental term of the contract.
 Inferred from purchaser’s behavior that he deliberately ensured that Vendor did not become aware
of the mistake  buyer knew of the error.
 Voidable contract  Vendor can rescind.
 Liebler v Air New Zealand: Silence is enough to be a deliberate inhibition of discovery.
 *Parties agreed to amend a fundamental clause for the benefit of ANZ.
 *ANZ’s own solicitors accidently deleted it rather than amended it.
 *Liebler’s agents were notified of the deletion. They knew that the deletion was a mistake, but did
not tell ANZ and then executed the contract.
 *ANZ then sought rectification to restore the amended clause.
 The appellants ought to have drawn the mistake to attention and, not having done so, had acted
unconscionably.
 Rectification allowed.
 Lewis v Averay: Unilateral mistake as to the identity of another contracting party allows rescission,
provided third party rights are not involved.
 *Pl advertised car for sale.
 *Rogue visited Pl and said he was a well-known actor, with a special pass of admission as proof.
 *Pl accepted a cheque on the basis of his identity, in payment for the car.
 *Def purchased the car from Rogue without notice of his fraudulent behaviour towards the Pl.
 *Pl then sued, claiming ownership of car.
 The mistake as to the identity of the buyer is a fundamental mistake (without it, the seller would
not had accepted the cheque).
 When parties deal face to face, the law presumes that there is a good contract, even though it was
induced by fraud  voidable, not void, contract.
 title could pass from the Rogue to the Def before the contract was avoided by the Pl  Def
entitled to the car.
 Rectification
 If a written document purporting to record the parties’ agreement contains a clerical error that was
overlooked by the parties, the court may rectify the document by correcting the error so that it
represents what was actually agreed.
 Rectification is retrospective.
Prior agreement
 Pukallus v Cameron: Rectification is only possible if the parties have reached prior agreement; but an
outward manifestation of this common intention (eg. a concluded antecedent contract) is not required.
Agreement of the omitted term
 Pukallus v Cameron: The party seeking rectification must prove a clearly understood, common
understanding of the intended term that was omitted.
 *Parties contracted for sale of land described as ‘Subdivision 1 of Portion 1154’
 *Both parties believed that a bore and cultivated land lay within the land.
 *Discovered later that they were actually in the remainder of Portion 1154.
 *Purchaser then sought to rectify the contract.
 Common intention of the parties was to contract for the sale of Subdivision 1 of Portion 1154.
 There was no clear evidence of an intention to contract for the sale of the bore and cultivated area.
 No rectification ordered.
Unilateral mistake
 Liebler v Air New Zealand
 *Liebler wanted to sell half interest in Jetset to ANZ.
 *Liebler resisted a purported clause by ANZ.
 *After negotiations, they reached a compromise and agreed to amend the clause.
 *ANZ solicitors mistakenly deleted the clause rather than amending it.
 *ANZ presented contract to Liebler for execution.
 *Liebler realised that the clause had been deleted in error, but refrained from telling ANZ, and
then executed it.
 *ANZ sought rectification.
 Since the amended clause was agreed between the parties, the contract should be rectified to
accord with that agreement.
 Taylor v Johnson – No rectification, because there was no agreement when the mistake was made.
NON EST FACTUM
 A defendant may escape the effect of signature through a plea of non est factum.
 To succeed in non est factum, the defendant must prove:
 That he suffered from some incapacity (permanent or temporary) which resulted in a radical or
fundamental misapprehension as to the nature of the document signed (Blomley v Ryan).
 Furthermore, if an innocent third party may be adversely affected, that the signer was not negligent in
signing without checking the nature of the contract (or other obvious precautions) (Petelin v Cullen).
 A successful plea in non est factum prevents formation of the contract.
 Illustration
 Petelin v Cullen
 *Petelin, who could not read English, gave Cullen an option to buy land.
 *After the expiry of the option, Cullen’s agent wrote to Petelin requesting an extension, enclosed
with a $50 cheque.
 *Later, agent met Petelin and asked him to sign the document, saying ‘sign it that you received
$50’.
 *Petelin signed the document in belief that it was a receipt.
 *Cullen exercised the option within the extended time. Petelin refused to sell, and Cullen sued for
specific performance.
 Principles:
 1) The defence is limited to people who are unable to read & must rely on others for advice as
to what they are signing, and to people who are unable to understand the nature of a document
through no fault of their own.
 2) Def must show that he signed in belief that the document was radically different from what
it actually was.
 3) At least against innocent persons, Def’s must show that his failure to read and understand
the document was not due to his carelessness.
 There is a heavy onus on the Def seeking to establish this defence.
 Although Cullen was unaware of what his agent did, he takes responsibility as principal &  he is
not considered as an innocent 3rd party.
 Petelin was not careless, because he was not expected to obtain independent advice at his own
expense and inconvenience.
 Petelin was incapable of understanding the document since he cannot read, and believed that he
was signing a receipt (which is radically different from an extension)  Non est factum succeeds
 void contract.
STATUTORY UNCONSCIONABILITY
FTA unconscionability provisions offer more powerful remedies than those available in common law, damages
in particular.
 S57 FTA
 S57(1): A person shall not, in trade or commerce, in connection with the supply or possible supply
of goods or services to another person, engage in conduct that is unconscionable.
 S57(5): ‘Goods or services’ is of a kind ordinarily acquired for personal, domestic or household use or
consumption.
 S57(6): ‘Supply or possible supply’ does not include supply or possible supply for the purpose of re-
supply or using goods up or transforming goods in trade or commerce.
 S46(1): Definitions.
 ‘Goods’ includes ships, aircraft and other vehicles; animals, including fish; minerals, trees and
crops, whether on, under or attached to land or not; and gas and electricity.
 ‘Services’ includes any rights provided in trade or commerce, including contract for work,
enjoyment, insurance, banking or loan.
 ‘Supply’ includes (in relation to goods) supply & re-supply by way of sale, exchange, lease, hire
or hire-purchase; and (in relation to services) provide, grant or confer.
 S57(2) lists factors of unconscionable conduct.
 S85 FTA: Provides compensation or other remedies for breach of s57(1).
 Can’t recover s84 damages for breach of s57(1).
DISCHARGE BY PERFORMANCE
 Condition precedent: A promise which must be fully performed before the other party’s obligation (to
perform their side of the bargain) arises.
Entire/exact performance
 Cutter v Powell: Entire contracts must be exactly performed.
 *Shipowner agreed to pay Cutter 30 guineas ‘provided he proceeds, continues and does his duty…
to the port of Liverpool’.
 *Cutter died about ¾s of the way through the voyage.
 Entire contract  Cutter’s promised performance was a condition precedent to the Def’s
obligation to pay.
 As he did not perform it as required, he was not entitled to any payment at all.
 Sumpter v Hedges
 *Pl agreed to build 2 houses for Def for 565 pounds.
 *Pl completed a substantial portion of the houses, when he ran out of money.
 *Def refused to pay anything for the partially completed houses.
 *Pl claimed for quantum meruit (reasonable amount of what was performed).
 Contract was entire  Pl’s completion of the houses was a condition precedent to the Def’s lump
sum payment.
 As the houses were not complete, Pl was not entitled to any monetary compensation for the work
done.
 The existence of the express contract prevented any right of recovery on a quantum meruit.
Substantial performance
 Hoenig v Isaacs: A condition precedent must be entirely or substantially performed.
 *Pl agreed to redecorate & furnish Def’s flat for 750 pounds.
 *Pl’s work was partially defective, which needed 55 pounds to be remedied.
 *Pl sued for payment.
 If there is substantial compliance with the contract, the price must be paid subject to a
counterclaim for damages.
 Pl entitled to contract price (750) less a deduction for the defects (55).
 Treitel: If an obligation is entire, it cannot be substantially performed.
 Some obligations in a contract are entire (must be performed exactly).
 Obligation to decorate & furnish the house was entire, which Pl did.
 Obligation to provide good quality furniture was not entire (not a condition precedent to
payment)  failure to perform it only gave rise to mere claim for damages.
 Bolton v Mahadeva: Whether there was substantial performance depends on the nature of the defects,
and the cost of rectifying them as a proportion of the contract price.
 *Pl agreed to install a heating system in Def’s home for 560 pounds.
 *System gave out offensive fumes & did not heat properly.
 *Remedial work would cost 174 pounds.
 *Pl sued for payment.
 No substantial performance because the work was ineffective for its ‘primary purpose’ (of
supplying a working heating system), and because of the nature and relative cost of the defects.
Entire obligation not completed because of Def’s breach
 Planche v Colburn: If the work is not completed because of the Def’s breach, the Pl can either:
 sue on a quantum meruit for the value of the work done prior to breach, or alternatively,
 sue for damages for breach of contract.
Simultaneous conditions precedent
 In sales contracts, performance is not conditional on the other’s performance, but conditional on the
other’s readiness & willingness to perform.
TERMINATION BY BREACH
Classification of terms
 A condition is an essential term which, if breached, gives the other party a right to terminate the contract
and immediately sue for damages.
 It is almost always a condition precedent to payment.

 What determines whether a term is a condition? Generally speaking, if the construction of the contract
shows that this was the intention of the parties.
Test
 Associated Newspapers Ltd v Bancks: Approved Jordan CJ’s test in Luna Park v Tramways
Advertising:
 If the innocent party would not have entered into the contract unless assured of a strict & literal
performance of the term, that term is a condition.
Parties expressly declaring terms to be conditions
 Schuler v Wickman: Expressly stating that a term is a ‘condition’ will not necessarily mean that it will
be construed as a condition in the legal sense.
 *A 4-year distributor contract provided that it shall be a ‘condition’ of this agreement that the
distributor shall visit 6 named customers at least once a week.
 Issue here is that ‘condition’ can mean many things.
 The drafters were not lawyers  parties must have intended the general meaning of ‘condition’ as
a mere contractual term, not as its strict legal meaning  only an innominate term.
 This is because the parties could not have intended that failure to visit a customer for a week,
could terminate the whole contract.
 Clearest way is to say ‘this term is of the essence’.
 A warranty is a minor term which, if breached, can never have grave consequences and therefore only gives
the other party a right to immediately sue for damages.
 An innominate term is a term which, if breached, is capable of carrying serious or minor consequences. If
the actual effects of a breach of an innominate term are sufficiently serious (at the time of purported
rescission), the innocent party is entitled to terminate the contract and/or sue for damages.
 Hong Kong Fir Shipping case
 *Pl chartered a ship from Def, who promised its seaworthiness.
 *Engine room staff were incompetent & ship’s machinery was old  7 out of 24 months of sailing
was lost.
 Obligation of seaworthiness was an innominate term because its breach could be trivial or grave.
 The delay did not deprive the charterers of substantially the whole benefit of the contract  not a
breach of the innominate term of seaworthiness.
 If a party in breach has (expressly or impliedly) indicated that he will not perform the contract (ie.
repudiated the contract), the other party has a right to terminate the contract, regardless of the classification
of the term breached.
 Holland v Wiltshire
 *Contract for sale of land provided that money should be paid by a specified date.
 *Buyers failed to settle on that date, and were given an extension.
 *Buyers later said that they would not proceed with the contract.
 The time clause was not of the essence  original failure to pay was not a breach of condition.
 Subsequent conduct of buyers showed a complete repudiation of the contract, entitling the sellers
to terminate it.
 Time stipulations
 Bunge v Tradax: In mercantile contracts, time is usually impliedly of the essence.
 Exception: Universal Cargo Carriers v Cetati: Failure by charterer to load within the stipulated
time was not a breach of condition.
 In contracts for sale of land, equity treats time stipulations as not being of the essence, but this rule can
be displaced if the parties expressly provide that time is of the essence or it is a condition.
 If a contract’s time stipulation is not of the essence, a notice given to complete within a reasonable time
after the time stated in the contract, makes the time provided in the notice of the essence.
 Louindier v Leis (contract for sale of land with no time stipulation)
 *Contract for sale of land, dated 1 Nov, did not fix any date for completion, and did not make time
of the essence.
 *On 8 Feb, Vendor served a notice requiring completion of the contract within 21 days.
 *On 4 Mar, Vendor purported to terminate the contract because of non-compliance with the notice.
 *Purchaser sought specific performance.
 A notice requiring completion within a stipulated reasonable time imposes a time stipulation not of
the essence.
 Mere breach of that time stipulation does not entitle termination.
 Only unreasonable delay after the time stipulated in the notice will constitute repudiation, and
entitle termination.
Anticipatory breach
 Definition & effect of an anticipatory breach

 Hochester v De la Tour: If a party renounces the contract before performance is due, this is an
anticipatory breach which gives the other party an immediate right to terminate the contract and claim
damages. (But the other party can allow the contract to remain in existence & wait until performance is
due)
 Test of renouncing: If a party has acted in a way that leads a reasonable person to the conclusion that
he does not intend to fulfil his part of the contract, that party has renounced the contract.
 What constitutes an anticipatory breach?
 Foran v Wight: Approved of Devlin J in Universal Cargo Carriers v Citati that an anticipatory breach
of a condition gives the other party an immediate right to terminate the contract and claim damages.
 Universal Cargo Carriers v Citati: Where a party is clearly found incapable of performing the contract,
the other party may treat this as an anticipatory breach. (Onus of proof on party alleging anticipatory
breach)
 *Charterers were obliged to finish loading by 21 July.
 *When loading had not begun on 18 July, the shipowners terminated the contract.
 *Loading would had taken more than 3 days.
 If the loading time was a condition, the shipowner can succeed on anticipatory breach by proving
that on 18 July, the charterer could not possibly finish loading by 21 July.
 Since the loading time was an innominate term, the shipowner can only succeed on anticipatory
breach by proving impossibility of loading before the delay frustrated the venture.
 Also, an anticipatory breach must be proved in fact, not in supposition.
 Position where both parties appear to commit a breach
Reliance on previously unknown facts that would have justified a past termination
 Boston v Ansell: If a party terminates the contract for no good reason, he may rely on facts which he
did not know at the time, but which existed before the breach, to justify the breach.
 *Company wrongfully sacked MD.
 *Company later discovered that he was breaching his fiduciary obligations to the company at the
time, which would had justified the termination.
 Company was entitled to terminate, since the first one who committed a breach was the
wrongdoer.
 British & Beningtons v NWTC: If, after a seemingly wrongful termination, it is discovered that the
other party was already incapable of performing at the time of termination, then the termination is
lawful.
Contracts with simultaneous conditions precedent
 Each party must show readiness & willingness to perform the contract as a condition of the other
party’s obligation,  if one party has committed an anticipatory breach, the other party can terminate
the contract and sue for damages only if he can show capacity to perform.
 Bowes v Chalyer
 *Contract required seller to deliver silk by ship, ‘half as soon as possible, half 2 months later’.
 *Buyers repudiated contract before shipment began, but Sellers affirmed the contract.
 *Sellers presented the silk in 3 shipments not in 2 month intervals, & silk was not divided into half
per shipment.
 *Buyers rejected the silk, & sellers sued.
 Shipping stipulation was a condition, failure to comply with them justified the Buyers’ rejection.
 (but not really a condition? Seller did not deliver late)
 (buyer cannot sue for damages, because there is no loss arising from non-compliance with the
shipping stipulation)
 Turnbull v Mundus
 *Contract to sell oats required the Buyer to nominate a ship in Sydney to load during Jan or Feb.
 *At the end of Jan, the Seller said they could not produce the oats at Sydney, but invited the Buyer
to nominate a ship in Melbourne.
 *Buyer did not terminate the contract until 2 March by buying oats elsewhere.
 *Buyer claimed damages = price of oats they bought elsewhere – price of oats originally
contracted with Seller.
 *Seller claimed that Buyer had never performed its obligation to nominate a ship in Sydney.
 Seller, by saying that they cannot perform, impliedly told Buyer that they should not perform too
 Seller estopped from insisting Buyer’s performance.
 Seller had clearly dispensed Buyer from the need to nominate a Sydney ship by indicating the
uselessness of doing so  Buyer could terminate & sue for loss of bargain damages, despite not
having performed his obligation.
 Important note: Buyer must still prove that it was not impossible for them to find a ship.
 Foran v Wight (Majority view)
 *Contract for sale of land to be completed by 22 June, & time was of essence.
 *Buyer had paid a deposit.
 *Vendor on 20 June said that they could not create a right of way by 22 June.
 *Buyer terminated & claimed deposit on 24 June.
 Vendor had committed an anticipatory breach of a condition.
 Vendor had indicated the uselessness of tendering the purchase price because they cannot create a
right of way, so Buyers did not need to show that they could pay. They only had to show that it
was not impossible for them to find the money.
 Testing of the possibility of the Buyer’s performance is at the time of the Vendor’s
anticipatory breach.
 Buyers met this test  could get deposit.
 Note: If Buyers wanted damages, they would have to show a probability of finding the money by
the 22nd. But – this is obiter.
Election to terminate / Election to affirm
 When does an election arise?

 Where a party commits a breach that gives the other party a right to terminate, the other party has an
election over whether to terminate.
 Effects of an election?
 In the absence of an election to terminate, the contract continues.
 Election to affirm is to cause loss of the right to terminate.
 Affirming does not preclude a right to damages for breach.
 When is an election effective?
 Peyman v Lanjani: The election requires knowledge of both the facts giving rise to the right to
terminate, and of the legal right to elect.
 Car & Universal Finance v Caldwell: The election to terminate must be communicated, but need not
be if it is impossible or obvious.
 *Rogue purchased car by fraud.
 *Owner notified police & RAA.
 Since it was impossible to communicate with the rogue, the owner’s notification to the police &
RAA was sufficient to terminate.
 Elder’s Justice v Commonwealth Homes: There is no time limit on election to terminate, & mere
inaction does not indicate an election to affirm.
 *Marshall could have terminated an allotment of shares, but he did nothing.
 *8 years later, executor purported termination.
 Merely remaining a shareholder was not inconsistent with ‘renunciation or disaffirmance’ 
Waiting did not constitute an election to affirm.
 However, delay could lead to the loss of the right to terminate if this were prejudicial to the other
party.
 Sargent v ASL Developments: Election to affirm need not be communicated, & can arise from conduct
or words.
 *Contract for sale of land provided that either party could withdraw if the land was subject to
planning controls, which happened.
 *32 months after the sale, the Vendor sought to terminate it.
 Vendor had elected to affirm by:
 Receiving interest payments from the Buyer,
 Recouping her rates payment from Buyer, and
 Rejoining Buyer in attempts to have the land reclassified.
 Temporary waiver of rights is not an election to affirm.
 Tropical Traders v Goonan
 *Sale of land required payment of instalments.
 *Time was of the essence.
 *Vendor agreed to extend the time for payment of the final instalment by 6 days, on the condition
that the Buyer pays the instalment plus interest.
 *It did not happen within the 6 extra days.
 Extension of time was an announcement of an intention to refrain from electing either way until
the money was or was not paid by the stated time.
 (This conditional waiver became unconditional on payment within the stated time.)
Effect of termination by breach
 When the innocent party terminates a contract by breach of the other party,
 Both parties are released from all remaining future obligations under it, and
 Obligations that have already accrued before termination must be performed.
Restitution
 ‘Total failure of consideration’ refers to consideration arising from actual performance of a promise (not
consideration arising from a promise).
Situations where buyer paid money to seller prior to termination:
 Deposits
 If the buyer breached the contract, he is not entitled to recover his deposit.
 If the seller breached the contract, the buyer is entitled to recover his deposit.
 Payments that are instalments of the purchase price
Contracts of sale
 McDonald v Dennys Lascelles: Instalments are treated to have been made conditional on the
completion of the contract’s performance  they are recoverable, regardless of which party defaulted.
 Dies v British & International Mining: Application of Dixon J’s statement in McDonald.
 *Contract for sale of armaments for total price of 270,000 pounds.
 *Buyer paid 100,000 pounds on the making of the contract. Not a deposit.
 *Buyer breached, and Seller justifiably terminated the contract.
 (Court expressly stated that the recovery of money was not based on total failure of consideration.)
 Payment of the money was made conditional upon receiving the weapons  Buyer entitled to
recover the 100,000 pounds (but seller entitled to sue for loss of bargain).
Contracts not of sale
 The Fibrosa
 *Contract for construction & sale of machinery was frustrated by war.
 *At that point, the buyers had paid 1000 pounds as part of a required advance payment of 1600
pounds, and the sellers had done considerable work on the machinery.
 Because no part of the machinery had been delivered, there was a total failure of consideration 
money recoverable by buyers.
 Hyundai Shipbuilding v Papadopoulus: If the payee is required by the contract to perform work &
incur expense before completion of the contract, payment would become unconditional when the work
is completed (subject to contrary intention, and contracts for the sale of land or goods).
 *Shipbuilding contract contained provisions for the payment of instalments of the purchase price
according to the progress of the work.
 *Buyers failed to pay an instalment due, & shipbuilder terminated the contract.
 Shipbuilder could claim that instalment, even though the boat was nowhere near completion.
(because the instalment was intended to cover the shipbuilder’s work, and so was conditional only
upon that work being performed – which it was)
 Distinguishable from McDonald and Dies, because here, the contract was not a simple case of sale,
but one to ‘build, launch, equip and complete a vessel, and then do deliver and sell her.
 (but – contradicts The Fibrosa!)
 Baltic Shipping Co v Dillon
 *Pl contracted to go on a 14-day holiday cruise on the Def’s ship.
 *Payment was lump sum in advance by the Pl  entire contract.
 *Cruise commenced as planned, but Defs breached contract when the ship sunk after 9 days.
 *Def transported Pl back to Australia & returned 1/3 of the lump sum.
 *Pl claimed 1) recovery of the remainder + 2) damages for loss of enjoyment for the remainder of
the cruise.
 1st approach: What was payment made conditional upon?
 Entire contract  if the money was payable at the end of the cruise, then payment would be
conditional upon performance of the entire 14-day cruise  Baltic Shipping would not
receive any payment (Sumpter v Hedges situation).
 However, where payment was made in advance of completion of contract, the issue is the
reason for the payment, not whether the contract is entire.
 The prior payment was intended to cover preparatory work necessary for the sailing 
Payment became unconditional upon the work being done (ie. when the Pl starts to enjoy the
promised benefits).
 Pl had some cruise  Pl unable to recover her payment by restitution.
 2nd approach: Was there a total failure of consideration? No.
 Pl had enjoyed benefits of the contract for 8 days  failure of consideration was partial, not
total  can’t recover payment.
 Damages issue: Damages for disappointment & distress flowing from breach of contract is
recoverable if that contract’s object was to provide enjoyment, relaxation or freedom from
molestation.
 Object of the contract was to provide enjoyment and relaxation  Pl is entitled to $5000
damages for disappointment & distress flowing from that breach of contract.
DAMAGES FOR BREACH OF CONTRACT
 Commonwealth v Amann Aviation: Approved Robinson v Harman that the purpose of contract damages is
to put the plaintiff ‘in the same situation as if the contract had been performed’. The Pl is entitled to
expectation loss.
Difficulties in assessing the expectation interest
 McRae v Commonwealth Disposals Commission: If assessment of the profitability of a contract is
impossible, the Pl is prima facie entitled to recovery of expenditure incurred in reliance on the promise of
the party in breach.
 *Cth warranted existence of a submerged oil tanker, & sold it to Pls.
 *Pls incurred expenses in searching for the tanker.
 *No such tanker existed.
 It is impossible to show the value of a non-existent thing, so can’t recover loss of profit.
 The Pls were entitled to recover damages measured by the expenditure incurred & wasted in reliance
on the Cth’s promise that the tanker existed.
 (The incurred expenditure fell within the 2nd limb of Hadley v Baxendale)
 Anglia TV v Reed
 *Def actor wrongfully withdrew from a TV play, which led to the abandonment of the play.
 Since there was no way of showing what the production was worth to Anglia TV, it was allowed to
recoup its reliance expenditure from the Actor.
 Commonwealth v Amann Aviation
 *Cth wrongfully withdrew from a contract of providing coastal surveillance for 3 years.
 *There was a strong prospect of renewal at the end of that period.
 *Cth could had validly terminated the contract through a 3rd party.
 *Pl had already incurred substantial expenditure on specially fitted planes with a low resale value.
 Where it is impossible to predict the possible profitability of the contract to the Pl, the law presumes
that the Pl would break-even (reliance expenditure would at least be equalled by the anticipated return
of the contract). This presumption enables the Pl to recover reliance expenditure which it would have
derived if the Def had fully performed.
 Impossible to predict the Pl’s position had the contract been fully performed  presumption
allows Pl to recover expenditure reasonably incurred in reliance on the Def’s promise.
 Presumption not displaced because Def could not show that the value of the possible renewal,
when combined with the gross receipts of the contract, was less than the total expenses to be
incurred by the Pl in performance of its contractual obligations.
 Pl was entitled to the $5.5 million which it had already spent after entering into the contract.
 Damages should not be discounted on account of an event which was unlikely to occur.
 There was only a 20% chance of lawful termination  damages not discounted for this
improbability.
Loss of chance damages
 Chaplin v Hicks: If a breach of contract deprives the Pl of a chance which is improbable to occur, the court
will estimate compensation for the lost chance.
 *Def breached contract  Pl was deprived of the chance to succeed in a beauty contest.
 Pl was entitled to damages, valued according to the chance of winning.
 Aldwell v Bundy
 *Pl incurred preparation expenditure in reliance on the Def’s promised boat race.
 *Def wrongfully cancelled the boat race & substituted another race.
 *First prize was reduced from 150 to 100 pounds, second prize was removed.
 According to Mason & Dawson in Amann:
 only loss of chance damages should be awarded.
 reliance damages are not recoverable in competition contracts, because it is not within the
contemplation of the parties that the Pl would recoup his expenditures.
Incommensurable damages
 Baltic Shipping Co v Dillon: Damages are awardable for loss of enjoyment from breach of a ‘holiday’
contract to provide enjoyment.
 Jackson v Horizon Holidays: The Pl was entitled to recover damages for the loss of enjoyment not only of
his own holiday, but also for that of his accompanying family. (problem – a non-trustee contracting party
cannot recover losses suffered by other persons than itself?)
 Ruxley Electronics v Forsyth
 *Def constructed swimming pool for Pl, 7.5ft depth required by contract.
 *Pool was only 6.75ft deep.
 *Pl sought reconstruction, which would cost 21,000 pounds.

 *This breach did not lower the value of the pool or interfere with its amenity, since diving was fully
possible.
 2500 pounds awarded for loss of the amenity involved in having the pool constructed in accordance
with the contract.
 This is because awarding no damages would be unfair, and ordering full reconstruction costs
would be unreasonable - granted its cost.
Pre-contract expenditures
 Anglia TV v Reed: Pre-contract expenditures are recoverable (under some circumstances).
 *Def knew that there had been previous expenditure on the play, and that his withdrawal at a late stage
could cause that previous expenditure to be wasted.
 The previous expenditure was recoverable, even though it was not reliance expenditure.
REMOTENESS OF DAMAGE
 Hadley v Baxendale: Damages are not too remote if:

 The damages arise naturally, according to the usual course of things, from such a breach of contract
itself; or
 The damages were reasonably contemplated, by both parties at the time they made the contract, as a
probable result of the breach.
 Hadley v Baxendale
 *Carrier promised Miller to take a broken crankshaft from mill to repairer.
 *Carrier’s breach of contract in delivering the shaft late caused the mill to stop for several days,
resulting in loss of profits to the Miller.
 Carrier was not liable for the loss of profit.
 1) Carrier had no actual knowledge that the particular crankshaft was required to run the mill.
 2) Loss of production profits was not a natural consequence of the failure to deliver a broken
crankshaft.
 Astley v Austrust: In cases of concurrent liability in contract & tort, the Pl could choose to rely on the cause
of action most favourable to him.
 The Heron No. 2: ‘not unlikely’ is sufficient to meet the 2nd limb of Hadley.
 *Defs agreed with Pls to transport sugar by sea to Basrah.
 *Defs knew that the Pls intended to sell the sugar there.
 *Defs were late in delivering the sugar.
 *The market price fell after the time the sugar should have arrived  Pl suffered loss.
 *A rise in the market price was just as probable as the fall, so the fall in market price was not
‘probable’.
 Loss is not too remote, since adverse consequences of late delivery were ‘not unlikely’.
 S50 Sale of Goods Act 1895 (SA): For late delivery under sale of goods, damages are based on the
difference between the contract price & the market price of the goods at the time they should have been
delivered.
Loss of speculative chances which are dependent on the volition of third parties
 Howe v Teefy
 *Pl racehorse trainer leased Def’s horse for 3 years to it.
 *Agreed that any prize money would be equally shared between Pl & Def.
 *Def breached the contract by taking the horse back 4 months later.
 *Pl claimed loss of the ability to make profits from betting on the horse & legally supplying 3 rd parties
with information about the horse.
 If a Pl has been deprived of something which has a monetary value, the loss must be assessed even if
the calculation is difficult or cannot be assessed with certainty.
 Pl here had been deprived of something with a monetary value.
 The parties contemplated that the Pl should exploit the training & racing of the horse for profitable
purposes, whatever they may be  the case fell within the first branch of Hedley.

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Dakshayani Velayudhan Study Circle

Email ID: dakshyanisfistudycircle@gmail.com

INTENTION TO CREATE LEGAL RELATIONS

Contract cannot be formed unless

Occurrence of a condition subsequent

Death of either offeror or offeree

CONSIDERATION (a requirement for simple contracts only)

Consideration must be legally sufficient

 Illegal, love or concern  Not legally sufficient.

 Courts are unwilling to declare agreements void for uncertainty.

(i) Contracts not in writing – Oral statements

(ii) Contracts not in writing – Displayed statements

 Whether a displayed statement is incorporated as a term depends on notice.

(iii) Contracts in writing

 ‘estimated speed 15mph’ indicates an opinion of the approximate speed  no element of

 Terms implied in fact – terms needed to give business efficacy to a contract.

Misrepresentation must be factual

Fraudulent and innocent misrepresentations

 Fraudulent misrepresentation  tort of deceit

 Negligent misrepresentation  tort of negligence

 Statements partially true.

Misrepresentation must induce entry into the contract to be actionable.

 *Def offered sale of his legal practice and house to Pl.

MISLEADING AND DECEPTIVE CONDUCT

‘In trade or commerce’

‘Conduct that is misleading or deceptive’

 S46(2) FTA: ‘Conduct’ refers to doing or refusing to do any act.

Causation and reliance

Remedies for misleading or deceptive conduct

 Rescission & variation of contracts

 CBA v Amadio: 3 requirements necessary for a finding of unconscionable conduct:

1) Special disability (Pl must prove)

2) Knowledge (Pl must prove)

3) Unconscionable advantage was taken of the disability (Presumed)

 Blomley v Ryan (age, drunkenness, lack of independent advice)

Special case – no actual disability, no actual or constructive knowledge of disability

NON EST FACTUM

 It is almost always a condition precedent to payment.

 Definition & effect of an anticipatory breach

Election to terminate / Election to affirm

 When does an election arise?

Effect of termination by breach

DAMAGES FOR BREACH OF CONTRACT

 *Pl sought reconstruction, which would cost 21,000 pounds.

 Hadley v Baxendale: Damages are not too remote if:

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