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Contract Law. Matters affecting Formation Privity Formalities. Elements of Formation Offer Acceptance Intention Consideration. Content: Terms Express Implied. Offer. Expression to another of a willingness to be legally bound by the stated terms

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contract law
Contract Law

Matters affecting Formation



Elements of Formation





Content: Terms



  • Expression to another of a willingness to be legally bound by the stated terms
  • Australian Woollen Mills v Commonwealth
  • Requirements
  • Statement to offeror containing stated terms
  • Statement is made to another person
  • Offeror indicates a preparedness to be bound

If requirements not met

If requirements are met


“Under [bilateral contracts] each party undertakes to do/ref. From doing something and in the event that either fails to perform, the law provides other party a remedy

Lord Diplock, United Dominions Trust v Eagle Aircraft Services


A uni. Contract involves an offer made by offeror to act/ref. Act if someone performs as requested. Offeree not bound to do so. Acceptance is also consideration

Carlill v Carbolic Smoke Ball Company

Mere Puff

Test: RM

How would RM interpret Ad. In position of offeree?

Manufacturers Material Insurance v John Boardman Insurance Brokers

Supply of Info

Test: Categorisation

Supplying information is not an offer.

Harvey v Facey

Invitation to treat


Test: (TOF) Language & circumstance

Anything that states an intention to be legally bound is an offer

RE Mt Tomah Blue Metals

Display of Goods

No test. Does not constitute an offer

Taking goods to counter is

Fisher v Bell

Advertisement for Auction

Not an offer

Harris v Nickerson

Auctions w/reserve

Invitation to treat

Payne v Cave

Special issues

Tickets for transport

Exemption/exclusion clauses only incorporated before formation


Revokable at any time unless consideration is provided to keep open

Standing offers

Indication of willingness of one party to provide goods/services over a specified period

May be revoked at any time before acceptance

Great Northern Railway v Whitham


Prior to carriage

Prominent notices can be incorporated

See incorporation of terms


Offer is machine ready to accept $

Acceptance is placing in $

Terms cannot be introduced after this point except where reasonable time to view terms before carriage.

Thornton v Shoe Lane Parking


Usually invitation to treat

EXCEPT: Offer when highest bid accepted

Harvela Investments v Royal Trust Company of Canada

Must consider all tenders

Hughes Aircraft Systems International v Air Services Australia

Auctions without reserve

Early English – offer

Warlow v Harrison

OR each bid represents an offer that can be accepted or rejected by auctioneer

AGC Advances v McWhirter


Withdrawal by Offeror

Can be withdrawn at any time before acceptance

Goldsbrough Mort & Co v Quinn

There needs to be actual communication to offeree

Bryne & Co v Leon Van Tien Hoven & Co

Communication by reliable source other than offeror or agent acceptable

Dickinson v Dodds

Rejection by Offeree

Rejection = termination

Stevenson Jacques & Co v McLean

Must be communicated to offeror

If offeree responds with new terms = counter offer

Hyde v Wrench


Death of offeror

Offer cannot be accepted after death

Exception: Property which can be completed by deceased estate

Dickinson v Dodds

Death of Offeree

If offeree dies, no offer.

Exception: Sale of property

Reynolds v Atherton

Lapse of Time

Once time limit expires, offer unable to be accepted

When not stated, time is set to reasonable

Manchester Diocesan Council for Education v Commercial & General Investments


If offer involved personal services, option will not enforce offer

Property may apply:

If conditional contract – enforceable

If irrevocable offer - unenforceable

Unilateral Contracts

Cannot withdraw offer once acceptance commenced

Abbott v Lance

Offers to World at Large

Less than actual communication acceptable

Use same medium to withdraw offer

Shuey v United States

Failure of condition

If offeree fails to comply with condition of conditional offer, it is terminated

Financings v Stimson


Agreements is formed once an offer is accepted


Offeree must intend to accept terms of offer

Intention must be communicated to the offeror

(Consensus Ad Idem)

Acceptance in Unilateral Contract

See notes pp. 09

Acceptance must correspond to offer

Notification of Acceptance

Method of acceptance

Postal Acceptance Rule

Where circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary uses of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.

Lord Hershell, Henthorn v Fraser

Offeree must have knowledge and act in reliance on offer

Crown v Clarke

  • Method of acceptance stipulated by offeror
  • Offeror can stipulate how communication is affected
  • If accepted in manner more advantageous to offeror – offer valid
  • Tinn v Hoffman & Co

Acceptance must be unqualified

If ‘subject to’ exists, TOI to determine whether acceptance is unqualfied

Masters v Cameron

Method for benefit of offeree

If method is for offerees benefit, they may chose to accept in another method Manchester Diocesan Council for Education v Commercial & General Investments


  • Contract formed when letter is posted
  • Adams v Linsell
  • Some argument about precisely when this takes place
  • Powel v Lee

Counter offer is not acceptance

Hyde v Wrench


Multiple methods

Prescribed method may not be only effective method on construction of terms

Acceptance couched in different language may be acceptable

(IE different forms)

  • If takes longer than usual to reach, risk is upon offeror
  • Household Fire and Carriage Insurance v Grant

Conduct may constitute acceptance

Empirnall Holdings v Mark Machon Paull Partners

  • Agreement not prevented if offeree seeks concession for performance before formation

Instantaneous Communication

Contract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror receives that communication. Entores L D v Miles Far East Corporation

  • Request for alternate mode of acceptance not prevent contract formation
  • Clive v Beaumont

Displacement of Rule

Can be displaced by offeror stipulating in contract that acceptance is not affected until actual receipt

Revocation prior to acceptance

Contract is formed even if offer is notified of rejection before receipt of acceptance

Nunin Holdings v Tullamarine Estates

  • If offerees conduct more favourable than terms of offer, agreement exists
  • Ex Parte Fealey

Multiple technologies

A offeree can use multiple technologies to accept an offer

Express Airways v Port Augusta Air Services

Mere inquiry not acceptance

Stevenson Jacques & Co v McLean

ambiguity and uncertainty
Ambiguity and Uncertainty

Ambiguous, Uncertain or Meaningless Contracts

Incomplete Agreement

Agreements to Negotiate

Individual Terms

  • Agreement contains mechanism to complete
  • If the parties do not finalise all the terms of the agreement but provide a mechanism for doing so, the agreement may be enforceable.
  • Vague, ambiguous and uncertain terms are void
  • Meaningless clauses = uncertain clauses
  • Fitzgerald v Masters
  • Court will try to uphold an agreement where parties show intention to be bound
  • Lend Lease Financial Planning v Southcap

If parties to agree on terms at later time, not enforceable

– Agreement to agree.

Booker Industries v Wilson Parking

If terms are sufficiently certain and consideration is provided, may be enforceable

Coal Cliff Collieries v Sijehama

Reference to 3rd party

even essential terms may be decided by 3rd party

Godecke v Kinwan

Method of increasing certainty – ref. 3rd party

Saving Ambiguous, Uncertain or Meaningless Contracts

Breakdown of mechanism to complete

Court will not substitute its own view if mechanism to complete fails

Milnes v Gery

Saving Incomplete Agreements

Link to external standard

Uncertain clause may be enforceable if referenced to an external standard

Hawthorn Football Club v Harding

Implication of Terms

Courts have shown a willingness to imply terms

Hillas & Co v Arcos

  • Breakdown RE Sales of Goods
  • If price is determined by third parties, governed under sales of goods act
  • (1896) s.12(1)
  • If prevented from making decision by party, the other may sue for damages
  • s.12(2)
  • If goods have been delivered and appropriated, they must pay for them
  • ss.12(1a)

More likely when willing to be bound

Hillas & Co v Arcos

Link to reasonableness standard

Courts will apply principle of reasonable ness (RM) to make terms certain

More likely when contract partially executed

Hall v Busst

No agreement on price, parties and subject matter no implication

Hall v Busst


Invalid term may be severed from contract and the remainder is enforceable

Fitzgerald v Masters

  • Sale of Goods
  • More likely to imply
  • Will imply reasonable price if contract is silent
  • Foley v Classique Coaches
  • Likely to uphold agreement in future
  • Likely to infer price if contract makes reference to
  • payment at reasonable price

Divisible Obligations

If uncertainty arises in one area due to multiple types of obligations, it can be severed and save the contract

Life Insurance Company of Australia v Phillips

  • Sale of Land
  • Will not imply price
  • Likely to uphold future agreement
  • Not likely to imply price when contract refers to reasonable price. (except rent, which they may determine via their own mechanism). Also applies to unique goods.

Waiver of Removal of Uncertainty

If clause is entered into for sole benefit of one party, it may be waived and contract saved

If uncertainty removed before commencement, specific performance may be granted

MacAulay v Greater Paramount Theatres

subject to agreements
‘Subject to’ Agreements

Subject to Finance

Subject to Contract

Intention of parties can fall into three categories

Test: Test of intentions. Language & conduct taken into account

Masters v Cameron

Contracts for sale of land may include a clause stating that the contract is subject to the ‘purchaser receiving approval for finance on satisfactory terms and conditions.’

TEST: Likely to use objective RM test

  • Parties have finalised all terms and intend to be immediately bound to perform those terms but propose to have the same terms restated in a form that is fuller or more precise but no different in effect


Satisfactory finance

A clause inserted for the benefit of the purchaser that allows the purchaser alone to determine what is satisfactory is not uncertain, however, the purchaser is required to act honestly.Meehan v Jones


Branca v Corbarro

2. The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of the terms conditional upon the execution of a formal document.

Steps taken to obtain finance

Finance clauses impose obligation on the purchaser to take all steps reasonably necessary to obtain finance approval.Meehan v Jones


Niesmann v Collingridge (1921)

3. The intention of the parties is NOT to make a concluded bargain at all, unless and until they execute a formal contract


Masters v Cameron

intention to create legal relations
Intention to create legal relations


Intention Test:

A common intention of the parties to enter into legal obligations, mutually communicated, expressly or impliedly.

Rose and Frank Co v JR Crompton & Bros

Test: Merritt v Merritt






No legal force

Balfour v Balfour

Easily Rebutted:

Legal force

Merritt v Merritt

Presumption is binding:

Requires more formality

Cogee Esplanade Surf Motel v Commonwealth of Australia




  • Considerations
  • Seriousness of conduct
  • Relative Expense of conduct
  • Hostility in relations
  • Closeness of ties
  • Nature of agreement

Not Binding

Australian Woolen Mills v The Commonwealth

Annoucements of policy are not unilateral offers

and policy while important, is not common in nature

Hard to rebut

Strong presumption

of legal force

Specific tone

Is it in a business context?

Esso Petroleum v

Commissioners of Customs

and Excise

consideration general

Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]

Consideration (General)

Consideration in Bilateral Contracts

Consideration in Unilateral Contracts

Offers to the world at large

Form of Unilateral Contract

Carlill v Carbolic Smoke Ball Company

At the time of the agreement each party makes a promise. The price paid for that promise – the consideration – is the other party’s promise. Each party promises to do an act or refrain from doing an act.

Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services)

It is the absence of an obligation undertaken by the promisee that distinguishes a unilateral contract from a bilateral contract. The act or forbearance itself – rather than a promise—constitutes the consideration.

Diplock LJ, United Dominions Trust (Commerical) v Eagle Aircraft Services)

Executory Consideration

the obligation to perform has not yet fallen due. (Bilateral contracts)

Executed Consideration

If B chooses to and does perform the specified acts, consideration is said to be executed. (Unilateral contracts)

consideration rules
Consideration (Rules)

Consideration is ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’Lord Dunedin, Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]

Rules of Consideration

Special Considerations

  • Consideration must move from promisee
  • Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd

Moral consideration not sufficient

Eastwood v Kenyon

  • Forbearance to sue
  • Settlements between parties likely to be upheld
  • Whether parties would win/lose not relevant
  • Not all compromises may be considered consideration

Peformance of existing duties is not sufficient consideration

Wigan v Edwards

  • Join promisees – Consideration need only come from one promisee
  • Coulls v Bagot’s Executor and Trustee Company
  • Does not have to move to promisor
  • Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd

Does not apply when promise is to do more than originally contracted to do

Hartley v Ponsonby

  • Requirements
  • Parties must act in good faith
  • Must have honest belief claim would be successful
  • Must be a genuine dispute
  • Wigan v Edwards
  • Claim must not be vexatious or frivolous
  • Hercules Motors v Schubert

Courts may find original contract abandoned and new one formed

Hartley v Ponsonby

  • Promisee may be party to a contract (doctrine of privity) but may not be able to sue on the promise if no consideration given
  • Tweedle v Atkinson

Promisory estoppel may prevent promisor reneging on subsequent promise

Performance of public duties

Performance of an act required by law is not sufficent

Glasbook Brothers v Glamorgan County Council

This may be changing

Ward v Byham

2. Consideration must be bargained for

The act/forbearance must be in reliance of the promise (at request of promisor)

Australian Woolen Mills v The Commonwealth

Promise made to a third party

‘An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains a benefit of a direct obligation which he can enforce.’

New Zealand Shipping Co v A M Satterthwaite & Co;

Port Jackson Stevedoring v Samond & Spraggon (Aust)

3. Consideration must be sufficient

Rules or special considerations allow for consideration

Rules or special considerations don’t allow for consideration

  • Must be ‘something of value in eyes of the law
  • Thomas v Thomas
  • May be valid although no monetary equivalent
  • Chappell & Co v Nestle
  • Consideration needs not be adequate
  • Woolworths v Kelly
  • Consideration can be nominal
  • Lennox v Cameron

Part Payment of Debt

Rule in Pinnel’s Case:If an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount owing, the later agreement will generally not be binding.

Consideration exists

Consideration doesn’t exist

4. Consideration must not be past

Consideration will be regarded as past if it has already flowed from promisee to promisor

Roscorla v Thomas

If work was done on the assumption that there was a promise to pay it may be sufficient. (see further on)

Distinct from executed/executory consideration (see pp. 149 text)


  • Exceptions:
  • Parties enter into a deed
  • Accomodation for benefit of creditor
  • Amount owing is disputed (HBF Dalgety v Moreton)
  • Payment by 3rd party (Hirachand Punamchand v Temple)
  • Composition with creditors
equitable estoppel
Equitable Estoppel

REQUIRES unconscionable conduct by one party

Waltons Stores (Interstate) v Maher

Unambiguous expectation by A

Legione v Hately

Encouraged/Induced by B

Mere Hope provides no equity

Lorimer v State Bank of New South Wales


Chellaram & Co v China Ocean Shipping Co


Thompson V Palmer

Unauthorised representation

Corpers (No. 664) v NZI Securities Australia

Action or abstainment by A


Waltons Stores (Interstate) v Maher

Plaintiffs characteristics

Ausotel v Franklins Self-Serve

A suffers detriment

(material disadvantage)

Thompson v Palmer

Knowledge/Intent of B

B Fails to avoid detriment

(ie. Disabuse A pre-detriment)

Lorimer v State Bank of New South Wales

  • ‘Minimum equity to do justice’
  • Waltons Stores (Interstate) v Maher
  • Must be:
  • Proportionate to the unconsciobility
  • Reliance rather than expectation (Cth v Verwayen)
  • Prima facie entitlement for expectation unless proved to great
  • Giumelli v Giumelli
privity of contract
Privity of Contract

Contract affect a 3rd party (benefits only)

Wilson v Darling Island Stevedoring Company

Common law

Collateral Contract

Promise by/to 3rd part contract

Restraint of Trade

Clubs affect members


3rd Party can sue for

a negligent breach of a

duty of care

Use of Land

People with an interest in the land can enforce benefits like repair/maintenance or limits to usage

Tulk v Moxhay


Statutory Exemption

Exceptions at Common Law

  • Trade Practices Act
  • Misleading/deceptive conduct
  • Property Law Act 1974, ss. 55
  • Consideration moves as normal
  • 3rd party benefit
  • Beneficiary must accept
  • Beneficiary must be named/described
  • Re Burns Philip Trustees; Rob & Jones
  • (363 Adelaide Street) v 1st Abbot Corp
  • Consistent actions not sufficient
  • Re Davies
  • Anticipatory acceptance may suffice
  • Hyatt AustraliaLtd LTCB Australia Ltd


Test: Intention

3rd party gets equitable interest in the contract.


Test: Intention

3rd party gets equitable interest in the contract

  • Insurance Contracts Act 1984
  • Beneficiaries can recover
  • Only general insurance


3rd party must act in contemplation

See Equitable Estoppel

Unjust Enrichment

formalities 1
Formalities 1


Property Law Act 1974 ss. .56

Rule: Contracts of guarantee are unless written and signed

Definition: A contract to answer for a debt, default or miscarriage by another who is primarily liable to the promise

Yeoman Credit v Latter

Debtor can pay


  • Requirements
  • Name of parties
  • Terms of guarantee
  • Consideration for guarantee
  • Guarantors liability is secondary
  • Yeoman Credit v Latter

Contracts of indemnity

Identifies liability is primary

Yeoman Credit v Latter

No personal liability

Harvery v Edwards Dunlop

Acceptance of debt

Gray v Pearson

Letters of Comfort

Dependant on intention

to create legal relations

Promise made to debtor

Eastwood v Kenyon

formalities 2
Formalities 2

Contracts relating to land

Land Deals must be written

ss. 59 Property Law Act

The following needs to be contained in this type of contract

Contains party ID

Williams v Brynes

Contains property ID

South Coast Oils v Look Enterprises

Consideration ID

Wain v Walters

Principle terms disclosed

Not always fatal to plaintiff

Petrie v Jensen

If part of a lot, portion must be described

Rosser v Austal Wine & Spirit Co.

Freeholds – no need to describe lease

Timmins v Moorland Street Property Co

  • Contract
  • Requires acknowledgement of agreement – Pirie v Saunders
  • Express or implied acknowledgement
  • Requires signature – Handwritten if intended to authenticate – Purrell v Evans
  • Authority need not be expressed – Nowraniv Brown
  • Electronic sig. – ss. 56, 59 & 14 Electronic Transactions Bill 2001


Multiple document joined to form

A single memo where one expressly/

Impliedly refers to others

Timmins v Moreland Property Co.

Direct reference – Tonitto v Bassal

Physical connection – McEwan v Dynon

Reference to transaction – Fauzi Elias v

George Sachely & Co (Barbados)



Equity – Estoppel of reliance on written contract

Walton Stores v Maher

Part Performance

Act points to agreement as alleged

Regent v Millet

Acts don in reliance & with knowledge

Acts done by parties seeking to enforce contract

Agreement concluded though not in writing

McBride v Sandland; Cooney v Burns


Gray V Ellis

Valid to pass title

Watson v Royal Permanent

Business Society

Constructive Trust

Protect parties with interest

In land. IE De-facto couples.

Baumgartner v Baumgartner

Recover amount paid – deposit

under monies had and received

Freedom v AHR Constructions

written terms
Written Terms

Incorporation by Notice

(pp. 25)

Incorporation by Signature

(pp. 24)

Incorporation by reference

(pp. 26)

Assumed to be bound regardless of awareness/understanding of terms

L’Estrange v F Graucob Ltd

Unsigned document

(pp. 25)


(pp. 25-26)


(pp. 26)

Terms can be incorporated by reference to another document

Smith v New South Wales Switchgear Co

Notice given before formation Olly v Marlborough Court

Reasonable Person (Onus on Defendant to prove) Parker v South Eastern Railway Co.

Traditional principles relevant

Exceptions (pp. 24)

Yes – Possible Incorporation

Reasonable Person

(Onus on defendant to prove) Theoretically

Test: Reasonable Man inc. circumstances

Not contractual

Signature does not signify assent

L’Estrange v F Graucob Ltd

Reasonable Person

(Onus on defendant to prove) Balmain New Ferry Company v Robertson

No extra steps taken – NOT INCORP.

Notice sufficient

(IE Doc. inc. terms)

Reasonable steps taken by defendant to inform plaintiff:


Yes: Incorp.

No: Not incorp.

Reasonable Man Parker v South Eastern Railway Co.

Notice sufficient

Misrepresentation of effect of clause

Curtis v Chemical Cleaning & Dyeing Co

Pass: Term Incorporated



Notice insufficient

(IE: No doc. inc. terms)

Fail: Term not incorporated

Notice insufficient

No incorporation

No incorporation

Non Est Factum

DJ Hill & Co v Walter H Wright

No – No incorporation


Assumed to be bound by terms Mendelssohn v Normand

Document not believed contractual in nature

Curtis v Chemical Cleaning & Dyeing Co


Unusual terms for contract

Test: Reasonable Man

(Parker v South Eastern Railway Co.

oral terms terms 1 2
Oral Terms (Terms 1 & 2)

Collateral Contract

Mere Puff



No common law remedy

Trade Practices Act

may provide one

  • Test:
  • Test of intention Oscar Chess v Williams
  • Words or conduct of partiesHarling v Eddy
  • Knowledge & expertise of statement maker Oscar Chess v Williams
  • 4. Statement maker has control of info Hospital products v US Surgical
  • Oral statement not reduced to writing Routledge v McKay
  • Interval of time Routledge v McKay
  • Criteria
  • Savage v Blackney
  • Intention to be relied upon
  • Reliance upon term
  • Intention to guarantee
  • truth of statement

Must preclude main contract

Hercules Motors

Must be consistent with main contract

Hoyts v Spencer

If a rep.

If a term

1. Consider parol evidence rule

(Doesn’t apply to part oral/written)

2. Objective test of intention

  • Possible damages for innocent misrepresentation
  • Possible brach of Trade Practices Act

Conditions met?


Test of Essentiality

Associated Newspapers & Bancks (pp. 34)

  • Intermittent Term
  • Intention of parties
  • Consequences of Breach
  • (Was party deprived of contract)


Subsidiary to main purpose

Bettini v Grye



No remedy to sue for breach of collateral contract

Remedy to sue for breach of collateral contract (not main contract)

Major breach

Minor breach

Terminate and/or damages

Damages only

implied terms 1 presumed intention of parties
Implied Terms #1 – Presumed intention of parties

Business efficacy

Custom or Usage

Whether the implication of term is necessary to give business efficacy to the transaction

  • Test of Fact
  • Term is known and acquiesced to.
  • Everyone assumes it part of contract.
  • Consistent with express terms
  • Five Tier Test
  • BP Refinery (Westernport) v Shire of Hastings
  • reasonable and equitable
  • Necessary to give business efficacy to contract
    • Interpreted strictly
  • Must be so obvious that it goes without saying
  • Must be capable of clear expression
  • Must not contradict any express term in contract

Knowledge of implied term not required

Not likely to be implied cf. other grounds

Parol evidence rule N/A

Parol evidence rule won’t apply

Mason J

To Complete Agreement

More formal, less chance of implication

When all terms are not finalised,

terms may be implied to complete agreement

Hillas & Co v Arcos

Previous consistent course of dealings

Applicability of parol evidence rule: Uncertain

Reasonable to hold parties contracted based on & knowledge that terms in previous contracts

Henry Kendal & Sons v William Lillico & Sons

  • Test: Reasonable man
  • Have parties virtually assented to terms
  • Must not expressly have inconsistent terms
  • Relevant terms are part of prev agreements
  • Evidence of previous consistent dealings
  • (Consider both # and consistency)

Parties need actual knowledge of the terms

Lord Devlin, McCuthcheon v David Macbrayne

Not in writing thus parol evidence rule N/A

Henry Kendall & Sons v William Lillico & Sons

implied terms 2 terms implied regardless of intent

Good faith, fair dealing and reasonableness

Class of contract

Implied Terms #2 – Terms implied regardless of intent

Courts will imply terms based on policy grounds

Australis Media Holdings v Telstra Corporation

Duty to act in good faith etc. in ALL contracts not fully settled issue in Australia

Yes, it exists: Renard Constructions (ME) v Minister for Public Works

  • Test: Policy Decision
  • Categories where terms will be implied
  • Goods & services
    • Must fit purpose for which they were supplied
  • Sammuels v Davis
  • Professional services
    • Reasonable care must be taken
  • Greaves & Co (Contractors) v Baynham
  • Employment
    • Safe place of work
    • Inform employees of rights in particular period
  • Scally v Southern Health and Social Services Board
  • Building
    • Fit for habitation
    • conduct professional and workmanlike
  • Perry v Sharon Developments Co
  • Franchise agreements
    • Good faith and fair dealing
  • Far Horizons v McDonald’s Australia

Parol evidence rule: N/A

Duty of Cooperation

  • Parties must do all things necessary to ensure parties have benefit of contract
  • Applied to ALL contracts, regardless of necessity
  • Butt v McDonald

Parol evidence rule N/A


  • Test: Reference to specific terms and overall substance of contract
  • RDJ International v Preformed Line Products (Australia)
  • To find:
  • Common intention of parties
  • Extent to which the duty of cooperation will require action

Statutory implication of terms in contracts

  • Provision of consumer credit
  • Consumer Credit Code 1994
  • Sale of Goods/Services (pp. 266 for detail)
  • Sale of Goods Act 1894
  • Hire Purchase
  • Hire Purchase Act 1959
  • Insurance
  • Insurance Contracts Act 1984
parol evidence rule

General Rule: Parol evidence rule will prevent an oral term from being introduced when a contract is brought down to writing

Parol Evidence Rule
  • Application:
  • Applies to contract solely in writing
  • Gordon v MacGregor
  • Only when the parties intend written document to represent the entire agreement
  • Express clause stating above is not necessarily enough to exclude oral terms (See construction of terms)
  • Hope v RCA Photophone of Australia

Does the Parol Evidence Rule apply?


  • Exceptions:
  • Evidence of collateral contract
  • De Lassalle v Guilford
  • Written contract not yet in force
  • Pym v Campbell
  • Written contract later varied or discharged
  • Narich v Commissioner of Payroll Tax
  • Implied terms available (see implied terms)
  • Evidence is needed for rectification
  • NSW Medical Defence Union v Transport Industries Insurance Co


Do exceptions Apply?



Extrinsic evidence is not permitted

Extrinsic evidence is permitted

interpreting the meaning of terms

General Rules

  • Ascertain the meaning of words
  • Determine the legal effects of the words
  • Documents constructed as a whole
  • Court will attempt as far as possible to give effect to a bargain
  • Hillas & Co v Arcos
  • Tests are made objectively through the eyes of the Reasonable Man

Admissible Evidence

Interpreting the meaning of Terms
  • Parol Evidence Rule
  • The objective of the rule is to preserve the sanctity of the written document and to avoid the process of construction being muddled by ‘uncertain testimony of slippery memory’.
  • ONLY applies to fully written contracts – extrinsic eviddence permissible to aid interpretations in other circumstances

Factual Matrix

When construing a document the court must place itself in the ‘same factual matrix as that in which the parties were.’

Reardon Smith Line v Yengvar Hansen Tangen


Court make take into account surrounding circumstances.

Allen v Carbone

Surrounding circumstance must have been known to BOTH parties.

Notorious, court may presume knowledge

Codelfa Construction v State Rail Authority of New South Wales


Extrinsic evidence may be used to resolve ambiguities

Inadmissible Evidence

Identification of Subject Matter

Extrinsic evidence admissible to resolve abiguity

White v Australian and New Zealand Theatres

Evidence of subjective intentions

Because its an objective test

Life Insurance Company of Australia v Phillips

Identification of parties

Extrinsic evidence abmissible to resolve ambiguity about identity, relationship or capacity

Edwards v Edwards

Prior negotiations

Because its not useful

Prenn v Simmonds

In commercial contracts, purpose of the contract should be considered

Reardon Smith Line v Yengvar Hanse-Tangen

  • Identification of real consideration
  • Extrinsic evidence admissible where:
  • No consideration is expressed
  • Is expressed ambiguously or generally
  • Additional consideration exists with stated consideration (must not be inconsistent with stated)
  • Yaroomba Beach Development Co v Coeur De Lion Investments

Subsequent Conduct

People may tailor their post-contract behaviour to reflect the case they believe they may have to present in court

Kirby J, Hide & Skin trading v Oceanic Meat Traders

Suggested that surrounding evidence should only be used if language is ambiguous or capable of multiple meanings and cannot be used to contradict language that is plain

Mason J, Codelfa Construction v State Rail Authority of New South Wales

Custom or Usage

Extrinsic evidence may be used where language has different contextual meanings even though the wording itself is not ambiguous

Thornley v Tilley


Extrinsic evidence may be used to show parties intentions were not properly recorded

Bacchus Marsh Concentrated Milk Co v Joseph Nathan & Co

legal effect of words types of terms

Other Clauses

Definition clauses – not capable of breach


Promissory Terms

Legal effect of words – types of terms

see Oral Terms

Duty of Good Faith

Extent of breach determined by classification of term

  • A contingency is when the parties wish to make a provision for the existence or the continued operation of the contract, or of an obligation in the contract, conditional upon the occurrence or non-occurrence of an event.
  • Courts interpret contingencies as requiring a election to terminate by one or both parties
  • Grange v Sullivan
  • Best Endeavours
  • Test: Reasonable cons. Circumstances
  • Mason J, Transfield v Arlo International
  • Does not require party to go beyond the bounds of reason
  • Sheffield District Railway v Great Central Railway Co
  • Entire Contract Clause
  • Excludes extraneous terms and non-fraudulent representations at common law
  • Life Insurance Co of Australia v Phillips
  • Does not prevent introduction of extrinsic evidence for purpose of rectification
  • MacDonald v Shinko Australia

Condition Precedent

an event that must occur before a contract comes into existence or an obligation under the contract arises. If the event fails to occur, there will either be no contract or the obligation will not arise.

Condition Subsequent

an event whose occurrence may give rise to a right to terminate further performance of the contract

  • Agreed Damages Clause
  • Provides for payment of an amount that is a genuine pre-estimate of the loss resulting from any breach.
  • Validity of such clauses is governed by the law related to penalties.

Where the contingency is for the benefit of one of the parties, it may be waived by that party, with the effect that the other party is unable to rely on the non-occurrence of the event as terminating the contract.

Perri v Coolangatta Investments Pty Ltd (1982)

Termination Clause

Confers a contractual right to terminate the contract for breach.

Force Majeure Clause

Disposition of a contract in the event of circumstances beyond the control of the parties

Restraint on Trade

Generally void unless proven reasonable

Generally the party for whose benefit the condition subsequent was inserted will be the party who has the right to terminate on non-occurrence.

Dispute Resolution Clause

Failure to comply may give rise to injunctions or damages

CSR v Cigna Insurance; The Jay Bola

Law of contract

Parties can chose jurisdiction contract governed under

Merwin Pastoral Co v Moopla Pastoral Co

If not stated, presumed intention of parties

Moonlighting International v International Lighting

exemption clauses
Exemption Clauses

‘Interpretation of an exemption clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears, including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity.’Darlington Futures Ltd v Delco Australia PtyLtd (1986)

  • Exclusion of Negligence
  • An exemption clause will relieve a party of liability for his/her negligence, or that of his/her servants or agents, if it expressly or impliedly covers such liability.
  • Will cover such liability if there can be no ground of liability other than negligence to which it could refer.
  • Canada Steamship Lines Ltd v The King [1952]
  • an express exemption of liability for negligence must be given effect and is sufficient to exclude liability
  • where there is no express reference to negligence, the court must decide whether the ordinary meaning of the words used in the clause are wide enough to exclude negligence.
  • Statute
  • The extent of protection offered by an exemption clause may reflect the degree of inequality of bargaining power between the parties.
  • At common law, the court has no absolving power and cannot refuse to enforce a valid exemption clause even where it operates unreasonably. This position has been altered by two statutes:
  • ·Contracts Review Act 1980 (NSW)
  • ·Trade Practices Act 1974 (Cth)
  • Must determine
  • Whether clause forms part of contract
  • Whether on construction it covers the arisen liability


Contra-preferentum rule

An exemption clause will be ordinarily construed strictly against the preferens – the party for whose benefit it is inserted.Eimco Corporation v Tutt Bryant Ltd [1970]

  • Rules of excluding negligence
  • Must pass contra preferentum rule
  • If language covers multiple heads of liability and negligence, negligence is excluded – word negligence or syn. Must be used Smith v NSW Swtichgear
  • Four Corners Rule
  • An exemption clause will only operate to exclude liability arising within the ‘four corners’ of the contract.
  • A proferens can only rely on conditions that were intended to protect him/her if he/she carried out the contract in the way he/she had contract to do it. It will NOT be effective where the proferens acts in a way ‘quite alien to the contract’.[1]
  • Davis v Pierce Parking Station Pty Ltd
  • An exemption clause will NOT apply where the loss or damage results from conduct that is not authorised or permitted by the contract
  • The Council of the City of Sydney v West

If all tests pass, Exemption clause will operate

If any test fails, Exemption clause WILL NOT operate