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TABL 1710

Business and the Law


Lecture 4
Contract Law (Contd)
Promissory estoppel, Intention,
Terms of a Contract

Lecturer: Lyn Brady

2016 The University of New South Wales


Sydney 2052 Australia
The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or
review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission.
Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

In-Class Exercise
on Lecture Topics 1 and 2

In tutorials this week


Closed Book
5 Multiple Choice Questions
Worth 5%
Remember: to pass the course you must
attempt ALL assessments
if you miss your tutorial next week, speak to your
tutor about doing the supplementary quiz
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Major Assignment
Available from Monday 29 August
On Moodle
Due 5pm, Tuesday 4 October (Wk 10)

Discussion Forum
Available from this week
One per tutorial group
For students to use to collaborate with their tutorial
group as they wish (voluntary)
Tutors will provide details about how to use the
Discussion Forum for your tutorial class
NO MARKS attached to this but a very useful
collaboration tool

Discussion Forum
Students are welcome to attach relevant articles,
media releases, images, videos, podcasts, cases etc
to their postings, if they wish
Students are especially encouraged to read and
to comment on the work of their peers
Be respectful and sensible about what you post

Your Tutors
NOTE: YOUR TUTORS ARE YOUR PRIMARY
POINT OF CONTACT
Make the most of your tutor!
Work closely with your tutor and communicate
with your tutor
Tutors will let you know details of their face-to-face
consultation times : see information in the Tutorial
Program
All queries should go to your tutor in the first
instance
Your tutor will let you know if your query needs to
be referred to LiC or to the administrative team
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Tutorial Attendance
Reminder: you can only attend the tutorial you
are enrolled in!
Tutors will refuse your attendance in a class where
you are not on the roll, unless prior arrangements
have been made (eg: due to illness, unavoidable
absence because of a job interview etc)
Remember there is an 80% attendance
requirementdont miss your tutorials!

Lecture 3: Summary
Essential elements of a contract:

Intention to enter into a legally binding contract (to


be covered today)

Agreement
Offer
Acceptance

Consideration (or price)

Lecture 3: Summary
Other elements for a valid contract:
Legal capacity
Genuine consent
Legality of purpose
Any formal/procedural requirements must be satisfied

Lecture 3: Summary
Essential elements of contract

1. The Offer
Intention/willingness to be bound (Clarke v Earl of
Dunraven)
Firm promise (Azzi v Volvo Car Australia)
Communication: Notice of Offer (Carlill v Carbolic
Smoke Ball)
Revocation of offer to occur before acceptance
(Dickinson v Dodds)

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Lecture 3: Summary
What is NOT an offer:
Invitation to treat (Pharmaceutical Society of
Great Britain v Boots): offer to make an offer
Counter-Offers (Hyde v Wrench)
Requests for Information (Harvey v Facey)

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Lecture 3: Summary
2. The Acceptance
Must be in response to Offer (R v Clarke)
Communicated (But: silence is generally not
acceptance Felthouse v Bindley)
Absolute, unqualified (Ebenezer Mining Co)
Postal Rule/Instantaneous communications

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Lecture 3: Summary
Consideration: what is it?
Essential to validity of contract
Something for something
Concept of VALUE
BUT can be broader than just price
Can include acts, promises etc

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Lecture 3: Summary
Consideration: what is it?
It is what the promisor gives in exchange for the
return promise or the return action from the promisee
Consideration turns an agreement into a contract
Failure of consideration can make an agreement
unenforceable

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Lecture 3: Summary
Rules for Consideration
1.

Consideration is essential to the validity of


every simple contract
Something the promisee gives to promisor for the
carrying out of some act
OR
The refraining from doing something that the
promisee had a legal right to do

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Lecture 3: Summary
Rules for Consideration
2. Consideration must not be past
Past consideration:
occurs where a promise is given after an act has
been performed
is generally not enforceable

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Lecture 3: Summary
Rules for Consideration
BUT: past consideration can be good consideration
IF:
the act was done at the promisors request
the parties understood that the act would be
remunerated
the promise would have been enforceable if it had
been promised in advance of the act
Lampleigh v Braithwait
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Lecture 3: Summary
Rules for Consideration
Therefore:
Consideration must be
Present (executed) consideration which is an act
done now in return for a promise when the act is
completed
Future (executory) consideration where the
parties agree to exchange promises to do
something in the future
Gibson & Fraser, at pp 188 to 189
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Lecture 3: Summary
Rules for Consideration
3. Consideration must move between the parties to
the contract (ie: from promisee, the person to
whom the promise is made)
Dunlop Pneumatic Tyres v Selfridge & Co
A B
BC
(ASK: Why cant A sue C?)
Coulls v Bagott
A B+C
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Lecture 3: Summary
Rules for Consideration
4. Consideration must have value but need not be
adequate
Consideration must have value but need not be
adequate as this is something only the parties to
the contract can decide
Chappell & Co Ltd v Nestle Co Ltd

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Lecture 3: Summary
Rules for Consideration
5. Consideration must be more than promise to carry
out an existing duty (see slides on Insufficient
Consideration)
6. Consideration must be definite
7. Consideration must be legal
8. Consideration must be referable to the other
partys promise cannot claim benefit of contract if
no consideration provided for promise (see also
Dunlop Pneumatic Tyres case and Coulls v Bagott)
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Lecture 3: Summary
Rules for Consideration
9. Practical benefit can be good consideration
.BUTsee next slide!
Williams v Roffey Bros & Nicholls (Contractors) Ltd

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Todays lecture

Insufficient Consideration
Doctrine of Promissory Estoppel
Intention to enter into legal relations
Terms of a contract
Representation vs terms
Parol evidence rule
Express vs implied terms
Collateral contracts
Conditions and warranties
Uncertain terms
Meaningless terms
Ambiguous terms
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Overview - Lecture 4
Terms of a Contract
On completion of this lecture you should be able to:
Explain what is meant by promissory estoppel
Clarify the roles of intention in contract law
Set out the legal requirements for a valid contract
Clarify the role of intention in contract law
Explain the difference between terms and
representations
Explain what is a collateral contract
Identify different types of terms (condition, warranty
etc)
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Insufficient Consideration
1.

Promise to perform a duty already imposed by


contract is not good consideration
(Exception: Practical Benefit see previous
slide)
Cases:
Stilk v Myrick
Hartley v Ponsonby

See Gibson & Fraser, at pp 193 to 195


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Insufficient Consideration
2.

Payment of a lesser sum is insufficient


consideration: Foakes v Beer

Part payment of a debt is NOT good consideration


or an adequate means of discharging the debt

Exception: if creditor agrees to accept smaller


amount (or something different), a debt is
considered discharged.

See Gibson & Fraser, at p 196

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Insufficient Consideration
3. Moral obligations, natural love and affection will
NOT convert a promise into good consideration:
Eastwood v Kenyon
See Gibson & Fraser, at p 198

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Consideration and Promissory Estoppel:


the exception to the rule
Promissory estoppel will allow a promise to be
enforced even though the promisee has not provided
good consideration for that promise
It operates where it would be inequitable, or
unconscionable, for the promisor not to be held to
their promise
You cant go back on your word!

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Promissory estoppel
Cases:
Central London Property Trust Ltd v High Trees
House Ltd
Waltons Stores (Interstate) Ltd v Maher
See Gibson & Fraser, at pp 199 to 202

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Promissory estoppel
Brennan Js (Waltons v Maher) six-point test for when
the promisor cannot go back on his/her word:
Promisee (Maher) assumes existence of particular legal
relationship
Promisor (Waltons) responsible for this assumption
Promisee acted/did not act in reliance on that assumption
Promisor knew what promisee intended for promisee to act in
this way
Promisee will suffer loss or detriment or harm if the
assumption/expectation is not fulfilled
Promisor did not take any steps to warn promisee s/he may not
fulfil expectation etc and unconscionability would arise if
Promisor allowed to go back on promise.
See Gibson & Fraser, at pp 201 to 202
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Promissory estoppel
Additional cases to read/research:
Commonwealth of Australia v Verwayen
Giumelli v Giumelli
See Gibson & Fraser, at p 202

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Intention to create legal relations

There must be evidence that the parties INTENDED to


make a legally enforceable contract

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Subject to contract
Expressly NO intention
Subject to contract clauses
Document not in its final form
Subject to preparation of written document
See Gibson & Fraser, at pp 166 to 167

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Presumed intention
The courts have to determine objectively whether the
parties intended the agreement to be legally
enforceable
To assist, traditionally agreements are divided into
consider two categories:
Social, family, domestic, voluntary
Commercial or business
Presumptions about intention are applied to each
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Presumed intention
Traditionally:
Social, family, domestic, voluntary (ie between
friends, family members or where services
volunteered)
PRESUMED NO INTENTION
Commercial or business
PRESUMED INTENTION TO BE BOUND

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Presumed intention
Traditionally:
Relevant presumption applied
Presumption could be rebutted by evidence
evidence
Party without benefit of presumption (eg
defendant in commercial agreement) bears
onus of rebutting it

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Intention
Presumptions now abolished
Traditional approach no longer apply
Better approach: situation will DEPEND ON THE
FACTS OF A CASE (BUTcourts will use
presumptions as tool to help form conclusions)
Case:
Ermogenous v Greek Orthodox Community of SA
Inc: wrong to formulate prescriptive rules
concerning intention
See Gibson & Fraser, at pp 169 to 172
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Intention: Relationship of the Parties

Social: - relationships made between friends or


acquaintances
Domestic: relationships between family members
and relatives
Voluntary: parties volunteer their services

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Intention: Domestic Agreements


Domestic agreements
Cases:
Cohen v Cohen
Wakeling v Ripley
See Gibson & Fraser, at pp 173 and 175

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Intention: Voluntary Agreements


Voluntary agreements
Cases:
Teen Ranch Pty Ltd v Brown
Ermogenous v Greek Orthodox Community of SA
Inc
See Gibson & Fraser, at pp 177 to 178

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Intention:
Domestic/Social or Voluntary Relationships
Matters to consider:
Status of parties:
Type of relationship and degree of closenes
Nature of relationship at time of agreement
Whether there is agreement/consensus between
parties and extent to which is defined as DEFINITIVE
Subject matter/topic and how agreement came to be

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Intention:
Domestic/Social or Voluntary Relationships
Matters to consider (Continued):
Seriousness of conduct (eg: relocating overseas/transfer of
property?)
Any expenses of inconvenience or substantial detriment
involved?
Was litigation for non-performance contemplated?
Was agreement formal or informal (eg: was it reduced to
writing?)
Case: Ermogenous v Greek Orthodox Community of SA Inc
See Gibson & Fraser, at pp 170 AND 178
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Intention: Commercial/Business
Assumption parties intended to create legal
contractual relations
BUT considered on a case by case basis
Cases:
Banque Brussels Lambert SA v Australian
National Industries Ltd
Kleinwort Benson Ltd v Malaysian Mining
Corporation Bhd
(Compare the two decisions)
See Gibson & Fraser, at p 181

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The contract
What have the parties agreed to?
What is the extent of the rights and
obligations that the parties have entered into?
The answer is found in the contents of the
contract

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Contents of a contract
Contents of a contract can be classified into
two categories:
(1) a representation:
non-contractual statement
made pre-contract during negotiations
not intended to be legally binding
if false, it is a misrepresentation
(2) a term:
contractual statement
intended to be legally binding
breach of term gives rise to action for breach of
contract
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Representations
Importance of truth of the representation
Reliance of innocent party on representation
Time period between representation and final
agreement
Intention behind making of representation
Omission of representation from contract
Consider any special knowledge or skills of
person who made representation
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Representation
Cases:
Oscar Chess Ltd v Williams
Bentley (Dick) Productions Ltd v Harold Smith
(Motors) Ltd
(Compare these two decisions: see also next slide)
See Gibson & Fraser, at pp 276 to 277

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Representation
Objective tests:
How much time has lapsed between making of
statement/representation and final agreement
Was the innocent party asked to check or verify the
statement/representation?
Was the statement/representation made with intention
of precenting other party from finding any defects (and
did it succeed?
What importance did the parties attach to the
statement/representation?
See Gibson & Fraser, at pp 275 to 277
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Representation
ASK:
Is it a statement of fact?
Did it induce the offeree to enter into the
contract?
See Gibson & Fraser, at p 275

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Representations and
the parol evidence rule
Parol = oral, spoken
If a contract is in writing and if the writing appears to
contain the whole contract, it is presumed that the
writing contains all of the terms of the contract

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Representations
and the parol evidence rule
Courts are generally reluctant to admit evidence of
words, acts or representations made prior to the
execution of the contract that might add to, vary or
contradict the written contract

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Terms of the contract


Terms include both:
express terms
implied terms

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Terms of the contract


(1) Express can be:
oral
written
oral and written
(2) Implied can be:
to give the contract business efficacy (ie: to help make sense of
the contract)
from custom or business usage
from previous dealings
by the intention of the parties
by the courts (ie: to define uncertain/meaningless/ambiguous
terms)
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Implied Terms
For terms to be implied into a contract, they must:
be reasonable and equitable
be necessary to give business efficacy
be so obvious it goes without saying
be capable of clear expression
not contradict an express term of the contract
See Gibson & Fraser, at pp 288 to 289 (esp Table at p 288)

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Statutory Implied Terms


Some statutes imply (add) terms to contracts where
consumers are involved
For example, concerning fitness for purpose,
merchantable (acceptable) quality, compliance
with description/sample etc
For example (to be studied later in the course):
Australian Consumer Law, which is Schedule 2 of
the Competition and Consumer Act, 2010 (Cth)

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Types of terms
1. Condition

an essential term going to the root of the


contract

allows injured party option of rescinding (ie


ending) the contract and/or suing for damage

2. Warranty

a non-essential term of lesser importance

allows the injured party only to recover


damages (and requires continued
performance of the contract)

See Gibson & Fraser, at pp 281 to 284 (esp Table at p 281)


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Condition or Warranty
Cases:
Bettini v Gye
Poussard v Spiers
(Compare these two decisions)
See Gibson & Fraser, at pp 284 to 285

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Uncertain terms
If there have been prior dealings, courts may imply
appropriate terms
Where there are no past dealings, courts may be
forced to find contract void for uncertainty

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Meaningless terms
If the term has no meaning, the courts will sever it if
possible and leave the rest of the contract valid
If this is not possible, the contract will be void for
uncertainty

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Ambiguous terms
If a term has more than one meaning, the contract
will not necessarily be void for uncertainty, so long as
the term can be given a meaning

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The FIVE STEP PLAN


to answering a legal problem
1. Identify relevant facts
What are the key facts that are relevant to the problem?
2. Identify key, relevant statutory provisions and case law
principles
Ask:
(a) does a statutory provision apply to this situation and does it
provide a specific answer to the problem?
(b) are there any cases which have dealt with a similar fact
situation to the one you are considering and/or which have
interpreted any relevant statutory provisions?
NOTE: you should provide the name/section of any relevant
legislation and the names of any relevant cases in your
answer
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The FIVE STEP PLAN


to answering a legal problem
3. Note similarities to (follow) or differences from (distinguish)
prior cases
Jot down the names of cases that you have studied, where the
facts were similar, if not identical to the ones in the problem you
are considering
Note any factual differences from previous cases and state
whether or not you consider that the differences matter to your
problem
Often the facts of a problem may be similar to but a little
different to those in a decided case: think about whether any
factual differences matter
Whether or not any differences matter will depend on the scope
of the legal principle that the relevant case stands for
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The FIVE STEP PLAN


to answering a legal problem
4.

Apply the relevant statutory provisions and case law


principles to the facts

Key aspect of answering legal problem question


After identifying the relevant facts, and referring to the relevant
statutory provisions and case law, you then have to apply the
relevant statutory and/or case law principles to the facts
of your problem
This step involves saying what the legal principles you have
identified mean to the facts of your problem and what the
effect of these legal principles will be on the rights and
obligations of the parties in your problem
Key part of the process of reasoning that leads to a conclusion
both in a legal problem question and in an actual court case

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The FIVE STEP PLAN


to answering a legal problem
5. Reach a conclusion based on the application of the
statutory provisions and case law principles to the facts
You need to reach a conclusion
The fact that a subsequent court can overrule the decision of a
previous court demonstrates that there is no absolutely correct
answer to legal problem questions
More important than the conclusion you reach is the process of
reasoning that led you to that conclusion

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How to answer a legal problem


Remember:
In your discussion/answer, you must include
references to relevant statutory provisions
(legislation name and, where possible, section
numbers) and case names

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Next lecture

Exclusion Clauses
Collateral contracts
Changing terms of a contract
Capacity
Privity
Agency
Vitiating elements (eg mistake, misrepresentation,
unconscionable conduct etc)

Reading for week 5: SEE NEXT SLIDE


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Exclusion Clauses

To be discussed in week 5
Limitation of liability clauses
One of the Assignment questions
Reading:
Gibson & Fraser, at pp 292 to 302 and pp 305
to 306
DO NOT READ materials on pp 302 and 303
regarding Australian Consumer Law we will
study this in week 7)
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