Contract LAW 1111 Notes

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Principles of Contract Law

Text Ch 1

Casebook Ch 2

“Slades case” – significant milestone in historical development of contract law. “line in the sand” where promise became enforceable. 1602AD.

Assumpsit – A ‘form of action’. Latin for “he has undertaken” or “he promised”. A promise to undertake, do or pay. Either oral or in writing, but is not under seal.

Executory: A contract that has not yet been fully performed – opposite to executed.

Contract law concerns itself with what people are obliged to do but have not done – or have done defectively.

Consideration makes executory agreement binding.

Parol promise: (simplistic) – informal agreement reached by word of mouth.

Contract: “A promise or set of promises the law will enforce” – Pollock.

Simple contract: may be oral or in writing

Formal Contract: agreement entered into between two parties in a particular form known as a deed. Contract entered into in deed form is also known as an agreement under seal or specialty contract.

Bilateral Contract: Both parties have obligation immediately to carry out their obligation or promise at the time of entering the agreement.

Unilateral Contract: Only one party has obligations to perform at time of its formation. Assuming the other has already executed his or her obligation. Eg reward for lost goods.

Void, unenforceable or illegal contracts: Defect in the quality of contract of one of the parties at contract formation. Treated as if never had any effect. However, until or unless it is rescinded, the contract is still valid.

Unenforceable may be if not written, when there is a statutory requirement for writing.

Illegal contract is one that is prohibited by statue eg contract for murder, as is contrary to public policy at common law.

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Fact of Agreement

Text Ch. 4

Casebook Ch 4

4.1 - An agreement does not mean there is a contract, unless supported by consideration & intention to create legal relations.

4.2 – Look at the negotiations between the parties and seek to establish whether one of them (the offeror) has made an offer to the other (offeree) and whether the latter has subsequently accepted the offer. The Offer

4.9 – Nielsen v Dysart Timbers Limited [2009]:

“An offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive”.

4.11 – For a valid offer to exist, it must be communicated to the offeree, or his agent, but the offeror, or his agent. If the offeree learns of the offer from an unauthorised person, there is no offer for that offeree to accept – Banks v Williams (1912).

Once an offer is communicated to the offeree, he or she has the power to transform it into an agreement by accepting. The Existence of an offer

4.12 – Invitation to treat is “a request to others to make offers or to engage in negotiations with a sale in mind”.

Bowen LJ, in Carlill v Carbolic Smoke Ball Co [1893], described an invitation to treat as follows, “in cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let… there is no offer to be bound by any contract. Such advertisements are offers to negotiate – offers to receive offers”.

4.13 – Gibson v Manchester City Council [1979], the council resolved to allow tenants of council housing to purchase their properties. The council sent a letter to Gibson in which it stated that it ‘may be prepared’ to sell to Gibson the premises that he was leasing from the council.

The letter stipulated the price and terms and conditions upon which a sale would take place. The letter then invited Gibson ‘to make a formal application to buy’ by completing an enclosed ‘application form’. Gibson sent a completed application form to the council, before formal contracts were prepared, control of the council passed to the British Labour Party. The council then resolved to abandon the scheme and complete only the legally binding contracts for sale of leased premises.

Gibson claimed he had such a contract. House of Lords ruled in favour of the council, holding that the council letter was only an invitation to treat. The letter “was but a step in the negotiations for a contract which never reached fruition”.

4.14 – See Contrastingly Storer v Manchester City Council [1974], A contract was found to have existed on similar facts – see case.

4.15 – Harvey v Facey [1893].

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Harvey telegraphed to Facey saying “will you sell us Bumper Hall Pen?.” Facey replied “lowest price for Bumper Hall Pen, 900GBP”. Harvey replied that he agreed to buy the property for 900GBP and asked that the title deeds be forwarded to him.

Facey refused, claiming there was no contract for sale. The question before the court: whether Facey’s reply to the initial telegram from Harvey was an offer or simply the supply of information.

House of Lords ruled in favour of Facey, saying the reply was merely the supply of information - “The mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at the lowest price”.

4.16 – As with Harvey v Facey is indicative of the view that where property, such as land, is of considerable value, the mere statement of price at which a person is prepared to sell, is usually not an offer.

Circulars, Catalogues and Advertisements

4.18 – The general rule is that circulars, catalogues and advertisements setting out price lists or promoting the sale of products are seen as invitations to treat.

Partridge v Crittenden [1968], an advertisement in a bird magazine which said “Bramblefinch cocks, Bramblefinch hens 25c each”, was held to be an invitation to treat only.

The use of the word “offer” in an advertisement does not mean that there is an offer in law – Spencer v Harding (1870).

The consequence of this is that the potential buyer makes the offer which the seller either accepts or rejects.

4.19 – Rationale for this approach is that if the seller is seen as making the offer, the number of acceptances by means of orders for the goods might well exceed the total stock held by the seller. The consequence would be that the seller would be in breach of contract to all those buyers who accepted the offer after stocks ran out – Grainger & Son v Gough [1896].

4.20 – However, the general rule will not apply if it is clear from the circular that the seller is limiting his or her liability to the amount of stock in hand, thus in Lefkowitz v great Minneapolis Surplus Store (1957):

The store placed a newspaper advertisement which read: “1 black Lapin Stole. Beautiful, worth $139.50. $1.00 First come first served”.

Lefkowitz presented, store refused to sell the sell the fur stole, on the basis of a house rule in the store that the advertisement was one which could only be taken up by a woman.

Lefkowitz sued the store for damages for breach of contract.

Supreme court found in favour of Lefkowitz, ruling that the advertisement was an offer which Leftkowitz had accepted and that the store could not impose new conditions on the offer, in the form of the house rule, after it had been accepted.

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“Where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract…

Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances. We are of the view on the facts before us that the offer by GMSS of the sale of the Lapin fur was clear, definite, and explicit, and left nothing open for negotiation”.

4.21 – Carlill v Carbolic Smoke Ball Co [1893].

CSBC produces the Carbolic Smoke Ball, a medical preparation. It placed an advertisement in a newspaper offering a reward of 100GBP to an person who, having used the medication as prescribed for two weeks, nevertheless contracted influenza. The advertisement further stated that the company had deposited 1000GBP in a special bank account as evidence of its sincerity.

Mrs. Carlill purchased the medication and used it as prescribed for eight weeks before contracting influenza. She sued to recover the 100GBP reward. The company argued that the advertisement was not an offer.

Court stressed that the necessary will or intention to make the advertisement an offer rather than ‘a mere puff’ was to be found in the fact that the company had set up a special bank account to meet possible claims as a sign of its sincerity in the matter’. Ken: The conventional view is that these are not offers but ‘invitations to treat’ - (an ‘invitation to treat’ in modern day language can perhaps be rephrased as an invitation to ‘make me an offer and maybe we can do a deal’ or similar – ie not an offer itself). Ken: See eg Partridge v Crittenden [1968] 2 All ER 421 Text paragraph 4.18 – this being an advertisement in a bird catalogue held to be an advertisement to treat with the consequence that it is the potential buyer who makes the offer that the advertiser can accept or not.

Ken: ‘Why’ did this outcome came about in the Partridge case? - which then leads to the following response: ‘the rationale is that if the seller was seen as making the offer, the number of acceptances might well exceed the total stock held by the seller’ – Text paragraph 4.16.

Ken: It is useful here revert to an analysis based on first principles – ie the definition of an offer is ‘a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive’ – then to enquire whether an advertisement in any instance can be described as an ‘offer’ (by definition).

Ken: You might then understand more clearly that in Partridge itself the court thought not, because it would mean that the advertiser was bound to sell to anyone who ‘accepted’ even when he ran out of stock - and this could not have been intended. Ken: A different result was obtained in Leftkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957) – see Text paragraph 4.20. Are the ultimate propositions are consistent with the first principles of an offer?: There, critically, the advertisement read ‘Black Lapin stole.. $1.00 first come first served’.

Ken: This was held to be an offer. The court said: Where the offer is clear, definite and explicit and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will consummate a

5 contract’. The fact that it was described as ‘first come first served’ meant (in that case) that the seller was limiting his or her liability to the stock. Ken: These facts would differentiate the case from the facts in Partridge and more importantly, demonstrate that the result might be achieved by actually analysing the conduct of the putative offeror at the most fundamental level rather than assuming without more that all circulars, or advertisements (as the case may be) should not be treated as offers.

Ken: Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256 is a ‘classic’ case in contract law which has been taught in Contract 1 (or its equivalent) from as far back as the memory is long. See the discussion at Text paragraph 4.21 and Casebook paragraph 4.2. The seminal finding that was that a newspaper advertisement offering a reward for someone, having used the medication in question caught the flu, was held to be an ‘offer’. The reward was GBP100, a big sum of money in those days.

The reasoning behind this is now part of classic contract theory:

a) The statement was not mere ‘puffery’; b) It was ‘intended by the public as an offer which was to be acted on. In one sense, this statement actually rather rhetorically restates the ‘test’ of what constitutes an offer in the first place – but just as importantly it emphasises the very importance of the test). Here, the smokeball manufacturer had set up a special bank account to meet possible claims as a ‘sign of sincerity’.

Display of Goods

4.22 – As a general rule, a display of priced goods in a shop, or shop window, is an invitation to treat and not an offer. The customer makes an offer for the goods which the retailer either accepts or rejects.

4.23 - Pharmaceuticals Society of Great Brittan v Boots Cash Chemist [1953].

Legislation stipulated that certain drugs could only be sold to members of the public if the sale was ‘effected by, or under the supervision of, a registered pharmacist’. Boots Cash Chemist operated a self-serve pharmacy. When its customers wanted to purchase drugs covered by the legislation, they would, after selecting the drugs to be purchased, proceed to the checkout desk where a registered handled the transaction.

The Pharmaceutical Society claimed that this method of selling the drugs breached the legislation.

Court ruled that the display was an invitation to tract, with the consequence that the customer made an offer at the time he or she presented at the checkout counter as willing to buy the relevant drugs. A registered pharmacist then accepted the offer, thus the sale was entered into under the supervision of a registered pharmacist and was compliant with the legislation.

4.24 – Carter:

“In the absence of a very clear indication of a contrary intention the shopkeeper should not be assumed to have relinquished the right to refuse to sell to customers, or to limit the number of items in short supply which will be sold to each customer.”

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4.26 – In Large, modern Department stores the Pharmaceutical Society rule may not be realistic. If the rule applies, it follows that ‘the customer brings the goods to the shopkeeper to see whether he will sell or not’.

Thus, there needs to be a person, the shopkeeper or some duly appointed agent, who has the authority to decide to sell the goods to the customer.

In a small shop, where the owner works in the shop and deals with customers, this may be realistic. But in large department stores or supermarkets, it may be that the store manager has such authority but it is not the case that the shop assistants or checkout operators can be said to have such authority. This is because the authority would also include the right to change the price from that marked on the goods.

Logically then, there could not be a contract entered into in such stores unless the person handling the sale was the owner or manager of the store. This is not what happens in reality.

Reality can best be explained by stating that the display is an offer which contemplates acceptance by only one means, namely taking the goods to the checkout and paying the stipulated price. A shop assistant or checkout operator can handle the matter as he or she is merely receiving acceptances as an agent appointed by the owner to receive acceptances.

Ken: As a discrete category, prima facie, a display is considered to be an ‘invitation to treat’ as a general rule but as already indicated, it might be more prudent to work from first principles.

Ken: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 – see Casebook paragraph 4.3 is another classic case in contract law. This case typically cited as the case which supports this ‘general rule’ (that a display of goods is not an offer). There, a display of items in a self service pharmacy was held not to be an ‘offer’.

Ken: The ‘offer’ (sic) was not accepted by the customer by picking up the item. The rationale was that such a display was an ‘invitation to treat’ and the sale was made when the customer by bringing the item to the cashier’s desk, made an offer to buy. You should also carefully note the circumstances of the case and the subject matter (regulated pharmaceutical goods).

Ken: In order to understand the case and principles, it is useful, as always to explore the actual rationale behind the principle – here, I refer to a useful rationalisation in paragraphs 4.22 – 4.26 Text. The suggestion that in a large shop, the cashier has the authority to ‘see whether he will sell or not’ has been described as unrealistic although that may yet be the case in a smaller shop. All in all – again – it is suggested that the best way to test the application of the principle on a case by case basis and with the fundamental definition of an ‘offer’ at the forefront of your consciousness.

Auctions

4.27 – In an auction it is well established that when an auctioneer puts up an item for sale he or she is not making an offer to sell to the highest bidder, but rather, is inviting offers from the assembled bidders. When a bidder makes an offer it can either be accepted or rejected by the auctioneer.

Acceptance of an offer made by a bidder is by the fall of the hammer – Payne v Cave (1789).

A consequence of this is that a bidder can withdraw an offer any time before it is accepted, on the principle that an offer can be withdrawn before it is accepted.

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It also means that the auctioneer does not have to accept and particular bid, nor the highest bid. – AGC (Advances) Ltd v McWhirter (1977).

It also follows that the cancellation of an advertised auction creates no contractual liability on the auctioneer.

Harris v Nickerson (1893). A prospective bidder who had travelled to the site where the auction was advertised as going to be held, only to find that it had been cancelled, was unable to recover damages for breach of contract in relation to his wasted travel expenses. The advertising of the auction was not an offer to hold an auction.

4.28 – On the other hand, if the auction is conducted on the basis that the auctioneer has stated that the highest bid will be accepted, then the highest bidder will get the contract – Harvela Investment Ltd v Royal Trust Co of Canada (CI) [1986].

4.29 – In the context of an auction with a reserve price, there ahs been confusion as to whether an auctioneer is obliged to accept the highest bid and what the consequences are, if any, if he or she refuses to do so.

AGC (Advances) v McWhirter and Seivewright v Brennan (2005) – it was held that the principles in Payne v Cave applied and that, irrespective of whether the auction was with or without reserve, no contract arose until the bidder’s offer was accepted by the auctioneer upon the fall of the hammer.

4.30 – However, Barry v Davies [2001] the court held that, in such circumstances, the holding of the auction constitutes an offer by the auctioneer to sell to the highest bidder and that the acceptance of the offer is made by the highest bidder.

4.31-32 – Support of this view.

Ken: The general proposition is that: the auctioneer by putting up an item is not making an offer but inviting offers from assembled bidders. See paragraph 4.27 Text. The bidders by bidding make an ‘offer’ capable of acceptance and upon knocking the item down, a contract is made. The application of this general rule however does lead to significant difficulties. Your Text raises the following specific points:

A. The consequence is that the bidder is free to withdraw the offer any time before the hammer goes down – paragraph 4.27 Text. Later in this lecture we will discuss the rules relating to the withdrawal of an offer generally. This is probably of more theoretical than practical importance inasmuch as there is likely to be no more than a split second of opportunity between the time the bidder makes a bid (offer) and the time that it is knocked down (if accepted). This aspect probably creates little conceptual difficulty.

B. The position of the auctioneer as can be seen from paras 4.28 – 4.33 of your text is conceptually far more complex:

C. Certainly the auctioneer is at liberty to withdraw the item for sale prior to the commencement of bidding eg by the cancellation of the auction as no extant ‘offer’ by anyone has yet been made – see eg para 4.27 text. From a contractual point of view, this is the case although there may be liability under legislation relating to misleading and deceptive conduct and the conduct of commercial transactions which will be studied in other units.

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D. Where the auction is conducted on the basis that the auctioneer has stated that the highest bid will be accepted, then the highest bidder will get the contract – Paragraph 4.28 Text. This again relatively easy to grasp if one goes back to first principles – such a statement would without more comply with the conventional definition of an offer as being a statement of the terms on which an offeror (the person making the offer) would be bound by an acceptance – see Nielsen v Dysart discussed above.

E. From this point on however the situation becomes more complex.

F. Taking first the position of an ‘auction without reserve’ – the balance of authority would seem to suggest that in an auction with a reserve price (in other words, the stated price below which the item will not be sold) the auctioneer will be held liable for refusing to sell to the highest bidder but the arguments and reasoning (and counterarguments) set out in your text are very difficult to reconcile, which has led to this situation has been described as confusing - see paragraph 4.29 Text.

G. In the case of an auction with reserve, the balance of authority would again likewise suggest that the auctioneer is bound to sell to the highest bidder once the reserve price has been met – see eg paragraph 4.33 text. Ken: The complexities surrounding auction sales are significant. Due partly also to the fact that the strong likelihood is that the conduct of an auction sale would be governed by very explicit terms and conditions, and partly by consumer legislation involving the sale or supply of goods (eg the Australian Consumer Law relating to misleading or deceptive conduct)

Lecture: I can advise that it is somewhat unlikely that you will be tested specifically on auction sales in your assessments.

Tenders

4.34 – Tenders are similar to auctions, key difference being that in a tendering process each bidder makes only one bid and without knowledge of the details of any other person’s bid. In the tendering process it is the tenderer who makes the offer, and not the person calling for tenders (the invitor). The invitor can accept or reject any tender – Meudell v Mayor of Bendigo (1900).

If, however, the invitor states that he or she will accept the best tender, then he or she must do so and a contract arises with the best tenderer – Harvela Investments v Royal Trust Co of Canada.

4.35 – However, an important qualification to the above principles relates to so-called ‘process contracts’. A process contract arises in cases where an invitation to tender creates an offer, with the result that the submission of a tender amounts to an acceptance of that offer. See text.

4.36 – Transit New Zealand v Pratt Contractors Ltd – case on ‘process contracts’.

4.37-43.

Ken: The concept of a ‘tender’ is that it is a means for someone to ‘test the market’ by calling for interested people to send in their ‘offers’ (used neutrally here).

Ken: Traditional case analysis is that the tenderer (ie the person responding to the tender - not the person calling for the tender) makes an offer because the person calling for the tender (sometimes

9 called the ‘invitor’ in some texts) would normally at that stage be entitled to accept or reject any tender. Meudell v Mayor of Bendigo (1900) VLR 158; Text paragraph 4.34.

Ken: But if (say) the person calling for tenders makes it clear that the process of calling for tenders (the invitor/’caller’) imposes an obligation on the him to grant a contract to a complying tenderer then the process of calling for tenders could be construed as an ‘offer’ – see paragraphs 4.34 Text. It all depends on the manner and form of the calling for tenders and the intention of the parties – Text paragraph 4.34.

Ken: A simplistic example – if say the person calling for the tender states that he or she will accept the ‘best tender’ (ignoring for now the conceptual/subjective difficulties that such a process, or wording would create inasmuch as it could be difficult to ascertain or identify what the ‘best tender’ is) then the calling for the tender is indeed an ‘offer’ – see the analysis at Text paragraph 4.34.

Ken: Once again, there is some benefit in considering the situation from the view point of basic principles ie that an offer by definition is ‘an expression of willingness to contract on the terms stated’ – if the situation falls within such category, then it is more likely to be characterised as an offer. Often rhetorical questions might asked as to whether or not there was indeed an expression of willingness to contract in the first place ie the question begs the very question – but the ultimate analysis of this question may well lead to the answer as to whether, in any given situation, an offer was indeed made.

Ken: To some extent, the discussion of the potential complications that arise from the analysis of contract formation arising out of a consideration of the tender process is really of more academic than practical interest, since, as your text correctly observes: it is the usual practice that invitors expressly reserve the right to accept (and axiomatically, to not accept) any tender at all, although strictly speaking, such an express reservation is unnecessary.

Ken: What this means is that the very stipulation that the invitor ‘reserves the right’ etc to accept or not any tender would run contrary to any suggestion that the putting out of a tender was by definition an ‘offer’ of any sort – See Nielsen v Dysart.

Lecture: Given that the primary imperative of this unit is to focus on matters practical, this is as much as I really want to say about tenders.

Standing Offers

4.44 – A standing offer arises when one person states his willingness to provide certain goods or services to another over a specified time period.

Eg stationer may agree to provide a business organisation with all its stationery needs for a period of 12 months based on a particular price list for individual items. In such a case the stationer makes an offer. An acceptance occurs each time an order for stationary is made, thereby creating individual contracts each time an order is made.

However, there is no obligation on the business organisation to make any orders at all, and it is free to purchase stationary from other suppliers – Colonical Ammunition Co v Reid (1900).

Ken: Standing Offers: When one person states his willingness to provide something over a specified period of time – generally held to be offers – paragraph 4.44 of Text. That means that over that period of time, the person (offeror) is bound to accept. (This is a relatively small category – typically

10 made by someone like a stationary shop). A question that is not specifically addressed in your text is whether the ‘usual’ rules relating to the revocation or withdrawal of an offer would apply to standing offers? (See the discussion below). I think that this would indeed be the case.

The Range of Offerees / To Whom Can an Offer be Made

4.45 – An offeror can restrict the offer to a single person or to a range of persons. Thus can be extended to:

1. A specified person; 2. Specified persons; 3. A class of persons defined by some description; or 4. The world at large.

4.46 – Only person who are the offerees are entitled to accept the offer – T W Hedley (Investments) Pty Ltd v Richardson Plant Hire Pty Ltd [2005]. Thus, in the context of a sale on eBay, an item that is listed for sale is regarded as an offer. The offerees are person who are registered as users of eBay and only they can accept the offer. The placement, by such a registered user, of the highest bid within the time limit stipulated in the offer is the acceptance of the offer – Smythe v Thomas (2007).

4.47 – The issue of offers to the world at large arose on the facts of Carlill v Carbolic Smoke Ball Co when CSBC argued that the offer of the reward could not be made to the world at large. In rejecting the argument, Bowen LJ pointed out that, although the offer was open to be accepted by anybody, contracts only arose with those persons who actually performed the conditions of the offer.

Termination of Offers

Ken: You will recall the general proposition that an offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive. The issue of ‘termination’ or the parameters of the ‘life’ of an offer, typically arises because someone tries to accept an offer and the other person argues that the offer has already terminated/is no longer capable or open for acceptance.

4.48 – An offer, once made, does not last forever. An offer can come to an end in a variety of ways.

Lapse of time

4.49 – An offer stated to be open for a set time lapses if not accepted within that time. If no set time for acceptance is stipulated in the offer, it lapses after the expiration of a reasonable time – Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Ltd (1988).

What constitutes a reasonable time depends on the facts and circumstances of the case.

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4.50 – In cases of the lapse of an offer after the expiration of a reasonable time, the question arises as to whether the conduct of the offeree is a relevant circumstance to be taken into account. See text.

Ken: What is a ‘reasonable time’ always depends on the facts and circumstances of the case – see Text paragraph 4.45; Empirnall Holdings v Machon Paul Partners Pty. Ltd. (1988) 14 NSWLR 523. So (eg) if an offer was made to sell you a specified quantity of bananas from a specified stock at a particular price, you could confidently assume that a court will hold that the time for the acceptance would have lapsed at no later than 6 months after (and almost certainly a lot sooner) for the obvious reason that bananas are perishable and do not last forever.

Rejection

4.51 – An offer once rejected is terminated. It cannot be subsequently accepted. A counter offer is an implied rejection of an offer.

Hyde v Wrench (1840), Wrench offered to sell land to Hyde for 1000GBP. Hyde responded by offering to buy the property for 950GBP. Wrench refused to accept the counter-offer, whereupon Hyde purported to accept Wrench’s original offer to sell for 1000GBP. The court held that no contract arose because the original offer came to an end once the counter-offer had been made. Thus there was no offer for Hyde to accept.

4.52 – However, care must be taken not to confuse a response that is a counter-offer with one that is merely a request for further information or clarification of the offer. A request for further information or clarification does not terminate the offer and thus leaves it open to be subsequently accepted.

“The line between rejecting an offer and merely inquiring as to a possible variation is a fine one, but the basic test is the effect on a reasonable person standing in the shoes of the offeror”. Powierza v Daley [1985]

4.53 – Stevenson Jacques & Co v McLean (1880), McLean offered to sell goods to Stevenson Jacques at a set price for cash on delivery. Stevenson Jacques subsequently accepted the offer before it was formally withdrawn, and claimed that there was a contract. SJ sued McLean for damages for non- delivery of the goods. Ruling in favour of SJ, Lush J said:

“The form of the telegram is one of inquiry. It is not like Hyde v Wrench where the negotiation was at an end by the refusal of the offerees counter proposal. Here there is no counter proposal. There is nothing specific by way of an offer or rejection, but a mere enquiry, which should have been answered and not treated as a rejection of the offer”.

Ken: A counter offer is an implied rejection ie the result is that having made a counter offer, the counter-offeror cannot then purport to accept the original offer – see Hyde v Wrench (1840) 49 ER 132; paragraph 4.51 Text.

Ken: A mere request for information (and of course, you will appreciate that in many cases, this begs the very question of the fact of whether it is a ‘mere request’) is not a rejection – see paragraphs 4.52– 4.53 Text; Powierza v Daley [1985] 1 NZLR 588; Stevenson v McLean (1880) 5 QBD 346.

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Revocation

5.45 – Except in cases where an option has been granted, an offer can be withdrawn by the offeror at any time before it is accepted – Routledge v Grant (1828).

This is so even if the offeror has stated that the offer is to remain open for a specified period of time. In such cases the statement or promise to keep the offer open is unenforceable because the offeree has not given consideration for it: Dickinson v Dodds (1876).

However, if consideration is given for the promise to keep the offer open, an option contract is created. It should be noted that even if the promise to keep the offer open for a set time is not supported by consideration from the offeree, it may be that relief is available to the offeree based on the principles of equitable estoppel.

4.55 – An option is a contract by which the option holder is entitled to enter into a contract with the grantor of the option, either on a specified date or at any time during the option period, by exercising the option in accordance with its terms. The option holder is not bound to exercise the option.

See Text for cases.

4.56 – More on option contracts.

4.57 – In relation to situations not involving options or equitable estoppel, the revocation of an offer must be communicated to the offeree in order to be effective – Financings Ltd v Stimson.

With revocation of an offer there is no postal rule. If a letter or telegram is used to revoke an offer, it must be received by the offeree before revocation is effective.

4.58 – Byrne v Van Tienhoven (1880), the offeror argued that his revocation was effective at the time it was posted to the offeree. This was rejected by the court:

“If the offerors contention were to prevail no person who had received an offer by post and had accepted it would know his position until he had waited such a time as to be quite sure that a letter withdrawing the offer had not been posted before his acceptance of it. It appears to be that both legal principle, and practical convenience require that a person who has accepted an offer not known to him to have been revoked, shall be in a position safety to act upon the footing that the offer and acceptance constitute a contract binding on both parties”.

4.59 – In Byrne v Van Tienhoven, the offeree had posted his acceptance of the offer after the offeror posted his letter withdrawing the offer, but before the letter withdrawing the offer was received. The offer was one to sell goods. The offeree, assuming he had a contract, re-sold the goods to a third party. The offeror claimed there was no contract. The offeree sued the offeror for damages for non- delivery of goods.

The offeree’s cases depended on there being a contract with the offeror. The court held that there was a contract because the letter withdrawing the offer, even though posted before the letter of acceptance was posted, was ineffective to withdraw the offer. This was because it had not been received by the offeree before the offeree had posted his letter of acceptance.

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4.60 – Although communication of revocation is required, it need not be communicated by the offeror. It does not matter who communicates the revocation to the offeree, so long as the information given to the offeree is reliable – Dickenson v Dodds (1876):

Dodds made an offer to sell land to Dickenson, but before Dickenson accepted the offer, Dodds sold the property to Allan. Dodds did not advise Dickenson of the sale, but Dickinson was made aware of the sale to Allan by Berry, who was Dickinson’s agent. Dickinson subsequently purported to accept Dodds offer. Court rejected this claim, stating that Dickinson knew that the offer had been revoked, because he know of the sale to Allan. Therefore, as Dodds’ offer had been revoked before Dickinson’s acceptance of it, there was no contract between the parties.

4.61 – If the situation had been that Dickinson had not known of Dodds’ sale to Allan, then Dickinson’s acceptance would have been valid and Dodds would have been liable to Dickinson for damages for breach of contract – Patterson v Dolman [1908].

To avoid liability in circumstances where a vendor makes offers to sell to a number of offerees, the offeror should make it clear that it is open for acceptance only by the first person to notify the offeror of this or her acceptance.

4.62 – A critical issue for the communication rule is to establish exactly when communication occurs. In cases of two-way instantaneous communications, such as face-to-face and telephone communications, it takes place when the offeror speaks to the offeree. However, if the offeror’s words are drowned out by aircraft noice, or spoken into a telephone after a line has gone dead or becomes so indistinct that the offeree does not hear them, there is not communication – Entores v Miles Far East Corporation [1955].

4.63 – However, where communication is by means of sending a message to the offeree, communications occurs when, in all the circumstances of the case, a reasonable offeree would have accessed the message received.

Thus, if a telex message is received by an offeree that is a commercial organisation, communication occurs when the telex was received, irrespective of whether it was read or not, on the ground that it is the responsibility of such an offeree to promptly handle messages received by its office – Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983].

On the other hand, a telexed or faxed message received during non-businesss hours will be deemed to have been received by the offeree at the start of the next business day – Schelde Delta Shipping BV v Astarte Shipping Ltd (The Pamela) [1995].

The conduct of the offeree could displace the rule requiring actual notification. Thus, a letter delivered to the last known address of the offeree could be seen as communication if the offeree had moved from that address without notifying the offeror of his or her new address.

Similarly, the conduct of the offeror could displace the rule. For Example, if an offeror uses more than one telephone number to communicate with an offeree, it would be difficult to argue that the offeree failed to accept the offer by leaving a message on the ‘wrong’ number.

4.64 – With electronic communications, notification via email is regulated by legislation that is common to all Australian Jurisdictions. Thus, if the offeree has a specified an email address, communication occurs when the offeror’s email enters the offeree’s information system. Electronic Transactions Act 2003 (WA) s13(3).

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However, if the offeree has not indicated that he or she has an email address, communication occurs when the email message actually comes to his or her intention. Electronic Transactions Act 2003 (WA) s13(4).

4.65 – A particular problem with the revocation of offer rule is with offers to the world at large, such as the reward offer cases exemplified by Carlill v Carbolic Smoke Ball Co.

Shuey v United States, America’s Secretary of State (1875) issued a reward of $25,000 in relation to the capture of John H Surratt, one of the accomplices in the assassination of President Abraham Lincoln. The offer was subsequently revoked by publication of a notice to that effect.

Subsequently, and in ignorance of the revocation of the offer, Henri provided relevant information to the American government and claimed the reward. He was unsuccessful because the offer of regard had been revoked before he had performed any act in acceptance of it.

“The offer was withdrawn through the same channel in which it was made. The same notoriety was given to the revocation that was given to the offer.” i.e. if the publication of the revocation notice is as broad and given the same notoriety as the offer, the offer will be regarded as effectively withdrawn. This is so even if a person who was aware of the offer did not actually know of the notice withdrawing the offer.

4.66 – Further problem in relation to offers to the world at large arises in circumstances where a person has started to perform the terms of the offer, but has not fully completed performance of them when the offeror revokes the offer. See Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd.

Ken: All this begs the very question of whether in any case, an option has in fact been granted or not.

Ken: In this regard, a crucially important principle relevant to ‘options’ is as set out in Dickinson v Dodds ie that a promise to keep an offer open itself (which would then by definition make that promise have the character of the grant of an option inasmuch as the option holder would be at liberty to exercise it and thus insist upon the formation of a contract with the ‘other person’ as I have explained that term above) is not binding unless supported by ‘consideration’. This is perhaps the most important single aspect of the law of ‘options’, or ‘promises to keep an offer open’ (to use language somewhat loosely simply for the purposes of illustration).

Ken: A real life situation which I myself was involved with when I was in practice, dramatically illustrates the operation of this principle that, subject to the principles contained in Dickinson v Dodds, which we have just been discussing, an offer can be withdrawn before acceptance. The situation was one in which there was a series of negotiations concerning the settlement of a claim.

Ken: The offeror (the maker of the offer in question for the purposes of this analysis) had made an offer which he almost immediately after its making, regretted making as it was very unfavourable to him. Not surprisingly the offeree just as immediately resolved to accept. The offeree telephoned the offeror with a view to accepting the offeror’s offer. The offeror knowing that the purpose of the phone call was to accept the offer, quickly ‘got in’ first and immediately withdrew the offer orally! Now if the offeree had ‘got in first’ and had uttered the words the offer is accepted or words to that effect, then subject to any other qualifications, and leaving aside questions of proof (about which, generally at least, you should not concern yourselves as it distracts you from the study of the principles), it may have been too late!

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Ken: These days, communications are far more likely to be by email or faxes – in particular email, as even faxes have fallen into disuse – so, as such, the rules relating to emailed acceptances are of greater practical importance. Ken: Two rules arise: firstly, where the offeree has designated that he or she has an email address, communication of revocation occurs when the offeror’s email enters the offeree’s information system. But where the offeree has not specified an email address, then communication of revocation only occurs when the message comes to his or her attention – see para 4.64 text. With the changing and differing exigencies of modern technology, it is beyond the scope of these studies to perform an indepth analysis of what constitutes an ‘information system’. Likewise, the astute student might pick up on the fact, legitimately, that the rule begs the question of what in fact does it mean to ‘specify’ an email address? As with the unit generally, it will suffice for you to identify the general principles and base your analysis of the facts on the same. Identifying the controversy and then dealing with it within the parameters of the somewhat legal knowledge we have acquired might be as far as we can take it.

Failure of a Condition

4.68 – An offer may be subject to an express or implied condition that a certain state of affairs remains unchanged until acceptance. If the state of affairs changes, the offer lapses and cannot thereafter be accepted.

Financings Ltd v Stimson, and offer to purchase a car from its owner lapsed and could not be accepted by the owner after the car was significantly damaged and its value substantially depreciated.

4.69 – In cases where the offer expressly indicates a particular state of affairs, the offer lapses once that state of affairs ceases to exist. In cases where no express statement of the relevant state of affairs is set out in the offer, there may be an implication that a certain state of affairs remains unchanged. In such cases, the critical question is the level of importance of the change in the state of affairs before a lapsing condition can be implied.

On this question, Tipping and Wilson JJ in Nielsen v Dysart Timbers Ltd:

“A condition that an offer lapse upon the occurance of a particular change of circumstances should be implied into the offer only if it is objectively apparent that the willingness of the offeror to be bound by the offer has been fundamentally undermined by the change of circumstances.

An offeree cannot reasonably expect to be able to accept an offer if the basis on which it was made has fundamentally changed. Conversely an offeror must ordinarily be expected to provide expressly for the circumstances in which the offer will lapse.

Ken: For the purposes of illustration, let us take an obvious example – an offer to buy a car. Ken: Before going on, firstly you need to appreciate, crucially, that this offer is being made by the person in the position of the intending purchaser so that makes him the offeror – and here you will again appreciate how important it is to work out the identity of an ‘offeror’ and ‘offeree’ as those terms are used in the texts just to follow the reasoning itself. You will appreciate that if you got it

16 wrong and got the roles jumbled, the analysis to follow below would make utterly no sense whatsoever: Ken: Such an offer is obviously subject to an implied condition that the car is in the same condition and lapses if the car is damaged – Financings Ltd v Stimson supra. So, if you offer to buy a car, the seller cannot compel you to take delivery of the car if in the meanwhile (before delivery) the car is damaged. In technical terms, ‘the offer to buy the car has terminated by failure of the implied condition that the car should have been in the same condition it was in when the offer was made’

Death of Offeror or Offeree

4.72 – It is generally assumed that, if the offeror dies before acceptance and the offeree knows of the death, the offeree cannot accept the offer – Dickinson v Dodds.

However, this could be subject to an established contrary intention. If the offeree does not know of the offeror’s death the situation is more complex.

If performance of professional services, th death of the offeror would presumably terminate the offer.

However, if the contract could be performed by the deceased offeror’s legal personal representative, it could be that the offer can be accepted notwithstanding the offeror’s death. Eg offer to sell land.

The Acceptance

4.74 – If an offer has been made and it has not been terminated, an agreement will come into being if the offer is accepted. Acceptances are usually expressed in some way, by on occasion can be implied.

The acceptance brings about consensus ad idem (a meeting of the minds).

Ken: The effect of acceptance is: ‘acceptance brings about consensus ad idem (a meeting of the minds)’ – and note the commentary in your text about the importance of this requirement.

Acceptance must be unequivocal

4.75 – This means that, by accepting an offer, it is clearly understood there is nothing left to be negotiated by the parties. This is a matter of interpreting the language used by the parties.

Ken: Rhetorically that it is clearly understood there is nothing left to be negotiated by the parties.

Acceptance must be in reliance upon the offer

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4.76 – For an offer to be accepted, the offeree’s acceptance must have been in reliance on, and in response to, the offer – R v Clarke (1927).

This means the offeree must have had knowledge of the offer. However, this can be rebutted by evidence to the contrary, as occurred in R v Clarke.

4.77 – R v Clarke (1927).

The Crown offered a reward for information leading to the arrest and conviction of the murderers of two police officers. Clarke, who knew of the reward offer, came forward with information that led to arrests and convictions, thereby satisfying the conditions of the reward offer.

However, on his own admission, Clarke gave the information soley for the purpose of clearing himself after he had been arrested and charged with being one of the murderers.

The High Court ruled that Clarke’s admission rebutted the prima facie proposition that he had acted in reliance on the offer when giving the information. Therefore being no acceptance, Clarke was not entitled to claim the reward.

Ken: You cannot ‘accept’ an offer that you don’t know about and also reliance would be excluded if you actually concede specifically that the act that you did was not in reliance on the offer! – see paragraphs 4.77 Text; R v Clarke (1927) 40 CLR 227.

Ken: Clarke was somewhat unusual inasmuch as the plaintiff actually denied any reliance on the offer – a situation which frankly would be somewhat unusual in an everyday situation and the suggestion seems to be made in paragraph 4.78 that this would come about where the claimant admits that he was totally indifferent to the offer. This would be somewhat unusual from a factual viewpoint!

Ken: Nb Clarke itself was a case of a unilateral contract, or to use the term consistently for now, one in which there was an offer which was made to the world at large which a member of the public purported to act in reliance upon (and here, the pivotal point was that he did not in fact act in reliance upon the offer).

Acceptance must correspond with the offer

4.79 – An acceptance must correspond exactly with the terms of the offer. Any response to an offer that adds additional terms or alters existing terms set out in the offer is not an acceptance.

Such a response is a counter-offer and has the effect of rejecting, rather than accepting, the offer.

Truner Kempson & Co Pty ltd v Camm [1922].

Camm sent a letter accepting an offer from Turner to sell him a quantity of raspberry pulp, adding that he wanted it delivered ‘in three lots of 5 tons each, approximately 10 days between each delivery’. The court held this to be a counter-offer and not an acceptance of Turner’s offer.

4.80 – However, in analysing responses to offers that may be counter-offers one needs to be careful because it may be that the response is not, and does not have the effect of, a counter-offer.

First, it may be that the response to the offer is an acceptance with additional terms included, not by way of a counter-offer, but rather as an acceptance of the offer with the additional terms to be

18 accepted by the offeror if he so wishes, but without affecting the acceptance fo the offer in its original form.

Dunlop v Higgins (1848), the offeree, in response to an offer to sell him goods, accepted the offer with a request that they be delivered on a particular date. This was held to be a valid acceptance because it was clear that the acceptance was not conditional upon the offeror agreeing to deliver the goods on that date.

Second, there may be valid acceptance if the diviation from the terms of the offer is siley in facour of the offeror – Boreland v Docker (2007).

Third, a response to an offer that does not ‘introduce any new terms, but only such terms as would reasonably follow consequentially on the agreement’ is not a rejection of the offer – Turner Kempson & Co Pty Ltd v Camm.

Lark v Outhwaite [1991], Hirst J:

“Statements which are not intended to vary the terms of the offer ,or to add new terms ,do not vitiate acceptance even where they do not precisely match the words of the offer, if the term merely makes express what would otherwise be implied.”

4.81 – Finally, an acceptance that does not coincide exactly with the terms of the offer due to some error or misdescription by the offeree when the acceptance is made, does not necessarily mean that there has bot been a valid acceptance.

Carter v Hyde (1923)

Carter offered to sell a hotel business to Hyde which included furniture, the offer stipulating the furniture being that which was in the hotel at the date of the offer. Hyde’s later acceptance of the offer, after referring to the date of the offer, expressly referred to the furniture as being that which was in the hotel at the date of acceptance. Carter argued that this amounted to a counter-offer which he was not prepared to accept.

The High Court disagreed and held that there was a valid acceptance, on the ground that the statement of the date of acceptance in relation to the furniture was simply an error. It could not preclude a reasonable person coming to the conclusion that the acceptance was anything other than a full and unconditional acceptance of the terms of the offer as stated on the date it was made.

4.82 – By way of contracts to Carter v Hyde, in Redowood Pty Ltd v Mongoose Pty Ltd [2005].

The offer required Redwood to insert the relevant SRN number on the acceptance form in a space designated for the SRN. The SRN was incorrect. The NSW Court of Appeal held that in the circumstances of the case, the insertion of an incorrect SRN in the acceptance form rendered it ineffective with the consequence that no contract arose between the parties.

Ken: Generally the acceptance must correspond exactly with the offer to be a valid acceptance – Text paragraph 4.79. Turner Kempson and Co Pty. Ltd. v Camm [1922] VLR 498 was a case in which the purported ‘acceptance’ contained additional terms as to delivery of the subject goods (raspberry pulp) which was not part of the offer. Held, that this was not a valid acceptance but a counter offer.

Ken: Be careful to distinguish between this situation and the situation where (say) the acceptance is in truth an acceptance but coupled with a ‘request’ of some sort. See paragraph 4.80 Text for some illustrations of the latter and the discussion of Dunlop v Higgins.

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Acceptance can be Express or Implied

4.83 – Most acceptances are by means of some express statement made by the offeree to the offeror. An offeror cannot stipulate that no response to an offer will be treated as an acceptance – Felthouse v Bindley (1862).

Empirnall Holdings v Machon Paull Partners, McHugh JA said:

“Under the common law theory of contract, the silent acceptance of an offer is generally insufficient to create any contract. The objective theory of contract requires an external manifestation of assent to an offer.

After a reasonable period has elapsed, silence is seen as a rejection and not an acceptance of the offer.

Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of the offer.

However, an offeror cannot erect a contract between himself and the offeree by a device of stating that unless he hears from the offeree he will consider the offeree bound. He cannot assert that he will regard silence as acceptance.”

4.84 – In Emprinall Holdings, the court held that the Felthouse v Bindley rule was subject to two qualifications.

The first is where a case based upon the principles of equitable estoppel can be raised against the offeree.

The second qualification arises where the conduct of the offeree amounts to an implication that he or she has accepted the offer (Contract formation by conduct).

Ken: An acceptance can also be implied. The circumstances under which such an implied acceptance arose in Empirnall (an important case) are set out in paragraph 4.83 of your text eg even where the offeree does not go so far as to say I accept your offer the acceptance may be treated as having taken place if (say) the offeree then delivers goods in accordance with the offer or says that he will do so or when he acts in a way consistent with acceptance or per Empirnall itself – when the developer in question made payments in terms of an unexecuted document – ie whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted – see para 4.88 at page 66 text – per Empirnall. I have emphasised the ‘silence’ part, as it has the potential to cause difficulties in analysis

Ken: Your text then points out that the performance of work that is consistent with a contract would be a very relevant factor pointing to a contract but that ‘this will not always be the case’ – para 4.88. The question always depends on the facts and circumstances of the case. A good example is Empirnall itself, whose facts are reflected in para 4.88 of your text. It is an important case and you should take the effort to read it carefully. The making of progress payments, even in the absence of a more specific form of acceptance in the circumstances of that particular case, amounted to an implied acceptance – but a less precise or more ambiguous type of conduct may lead to a different result.

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Ken: In other cases, silence in conjunction with other facts of the case, may indicate that the offeree has accepted the offer – examine the simplistic example of the offeree taking the benefit of goods where he had an opportunity to reject them but did not do so etc. – at pargraph 4.83.

Ken: In the leading case that we will be studying, namely the case of Waltons Stores, the court essentially found that the silence of one party (Waltons Stores – the party at fault/representor) was the very foundation for the estoppel based relief – but there was no positive act of the type in Empirnall. In the end result, the court did not find that a contract had come into existence, which then provided the very impetus for the need to find that there was some basis for relief in estoppel.

Ken: Assuming that the ingredients for implied acceptance can otherwise be satisfied, there presently seems to be very limited definitive authority as to whether silence alone, similar to the type that Waltons Stores was guilty of, in the absence of some positive act done pursuant to, or under the terms of, some contract, would suffice to give rise to a binding contract.

Contract formation by conduct

Ken: The confusion arises because in some respects, conceptually ‘contract formation by conduct’ (referred to in paragraph 4.85 and following) could be regarded as synonymous conceptually with, or at least partially overlaps with, contract formation by means which are ‘in the alternative to offer and acceptance’ (referred to in paragraph 4.109 and following) and it might cause confusion for both to be addressed as though they were disparate concepts. Ken: Both deal with the idea that a contract can be formed without necessarily breaking down (the expression that is used, and which I will use hereafter, is ‘deconstructed’) into ‘offer and acceptance’. In this regard, I myself actually think myself that certainly at least the final part of the heading, from para 4.117 and following, in which you will see that the court analyses the ‘global approach’, could quite neatly and, more appropriately, have been addressed as part of the discussion of ‘contract formation by conduct’’ (which takes place earlier in the chapter, at para 4.85 and following – note in particular the discussion of Integrated Computers at para 4.89.

Ken: Thus, the discussion in paragraph 4.117 really is conceptually part and parcel of the discussion of ‘contract formation by conduct’ – or vice versa. Integrated Computers, which is cited at para 4.89 was explicitly a case of the ‘global approach’ which is mentioned at para 4.117.

Ken: You will also see, just as importantly (and this, if anything, underlines the very point I am trying to make above) that this part of our discussion is separate from the discussion of ‘implied acceptance’. What then is the difference from a practical point of view between ‘implied acceptance’ on the one hand, and ‘contract formation by conduct’ or ‘alternatives to offer and acceptance’ on the other? It is, I think, fair to say that in a factual scenario, arguments relating to the fact of agreement might well (in fact, in most cases, very likely, will) raise arguments that could invoke both sets of concepts or overlap.

Ken: But conceptually, at least, the concept of ‘implied acceptance’ by its very description invokes the notion of conduct which can at least be deconstructed into ‘offer’ and (implied) acceptance of some sort, whereas the concepts of ‘contract formation by conduct’ and ‘alternatives to offer and acceptance’ cannot be so deconstructed ie one then needs to resort to other avenues in order to ascertain if the parties did, ultimately, reach agreement.

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Ken: in any one situation you might want to deal with both concepts, but it is different at least conceptually in this way:

• ‘Implied acceptance’ seems to be the type of concept which is invoked where you could at least ‘find’ conduct of some sort which would in some way amount to ‘acceptance’, even if it did not amount to express acceptance. Even then, one might legitimately enquire why a case like Brogden (see paragraph 4.86 of your text) is treated as one of ‘contract formation by conduct’ when you might just as well argue that it was a case of ‘implied acceptance’. • On the other hand, in a case attracting an analysis of ‘alternatives to offer and acceptance’, the fundamental point seems to be that there is no conduct that is capable of being construed, strictly, as being ‘acceptance’ but where the inference of contract occurs rather more from an overall analysis of the conduct of the parties.

Ken: You might appreciate from reading the summary of Integrated Computers at para 4.89 of your text (a very important case) that the concept of global contractual formation or one in which a contract is inferred from the conduct of the parties (and here, consistent with Mario Brothers I have used these expressions interchangeably) is one where the parties have somewhat ‘drifted’ into a contractual relationship but without any conduct that can be treated as offer and acceptance (implicit, or otherwise). There are numerous formulations of how this might take place from a practical point of view which we will now explore:

• A very important requirement when the global approach/contract formation by conduct approach), is taken, concerns the need to ascertain the parties’ actual intention (viz whether or not to make a contract and how this is to be ascertained) – at paragraphs 4.90 – 4.93 Text and note the cases referred to therein. The cases discussed there are all significant cases.

• Fundamentally if you examine the principles collected in the cases mentioned in paragraphs 4.88 – 4.93, put in the most general terms, you need to examine the facts and circumstances to examine whether the conduct of the parties is such as to give rise not just to the existence of a contract but also its terms – something that is ‘not easily achieved’ as ‘the evidence pointing to such inference must be clear’ (and here, it is self evident that the very difficulty of the ‘imputed intention’ argument comes about specifically because we have not been able to identify any extant ‘offer’ or ‘acceptance’ in the traditional sense in the first place.

• Empirnall which we have discussed earlier again emphasises the need for an overall analysis of the conduct of the parties, including silence – see paragraph 4.88 text. Empirnall is thus clearly a very important case. Incidentally, you will see that the principles in Empirnall have been cited in relation both to contract formation by conduct (in paragraph 4.88), as well as of ‘implied acceptance’ (at paragraph 4.84) – and this might indicate to you how the one set of factual circumstances might conceivably invoke both concepts.

Ken: This is thus in some ways a very incomplete executive summary, intended simply to assist you follow the various, somewhat complicated arguments that can arise:

a. Agreement can be reached by the conventional means of offer and acceptance.

b. Where there is no express offer and acceptance, then it is possible for acceptance to be implied.

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c. It is possible for the silence of the offeree to give rise to an implication of acceptance when considered in the light of the circumstances of the case.

d. Where the conduct of the parties cannot be deconstructed into any form of offer and acceptance (implied or otherwise) then it is yet possible to form an inference of complete agreement by an application of a ‘global approach’.

e. In both the above categories, the silence of the offeree might well be relevant when considered with the circumstances of the case, to determine if there was in fact implied acceptance, or if the fact of agreement can be inferred by an application of a global approach.

f. The difficulty with the above concept is that the authorities do not seem to be very clear as to when, if at all, the silence of the offeree without any other positive act on his part, can, on either the implied acceptance approach, or the global approach, be such as to give rise to an inference of the fact of agreement. That is the very question I explore at length in my own article.

g. Even if the silence without more of one party cannot be such as to give rise to an inference of the fact of agreement, then estoppel based relief might yet be available. This is not something we can discuss at any length right now but simply note this observation and where it ‘sits’ in the overall analysis.

4.85 – Where offer and acceptance analysis is inappropriate to determine the question of the existence of a contract, it may nevertheless be possible to infer the existence of a contract and its terms based on the conduct of the parties – The Bell Group Ltd v Westpac Banking Corp (2008).

In such cases, the character and circumstances of the conduct must indicate unambiguously that there is an intention to contract.

4.86 – One situation where conduct can give rise to a contract is where there has been an offer and where there has been conduct but the offeree that is consistent with the offer, but there has been no actual acceptance of the offer.

Example, Brogden v Metropolitan Railway Co (1877), Brogden had been supplying coal to the Metro Railway Co on a casual basis. The parties met and drew up a draft agreement which provided for supply of coal at a price of $1 per ton for 12 months from 1 Jan 1872 and further 12 months if two months’ notice of termination was not given prior to the expiry date. The price which had been charged prior to 1 Jan 2872 had been less than $1 per ton. However, the market price was rising at the time and it was expected that it would continue to rise. The aim of the proposed agreement was to fix the price for the next year or two.

The railway company prepared the draft and submitted it to Brogden for approval. After the planks were filled in and one alteration was made, it was signed and sent to the railway company. The railway company put the document into a drawer and the following day write back to Brodgen simply stating “we shall require 250 tons per week commencing not later than the 1st of January next’. Over the next two years, the parties acted in accordance with the draft and referred to it in correspondence passing between them. Then a dispute arose concerning the supply of coal.

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The supplier denied there was a contract which bound him, but the House of Lords ruled that there was a contract. Lord Hatherly held that a ‘binding and firm agreement between the parties’ could arise:

“if it should be found that, although there has been no formal recognition of the agreement in terms by the one side, yet the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they dealt were made aware by that course of dealing, that the contract which they had propounded has been in fact accepted by the persons who so dealt with them.”

4.88 – In Empirnall Holdings v Machon Paull Partners, McHugh JA said that the ‘ultimate factual use is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.

In this case, a property developer engaged and architect to undertake a property development. The architect forwarded a printed contract to the developer which the developer never signed.

Progress payments were made consistent with the printed contract.

NSW Court of Appeal held that the making of payments by the developer amounted to an acceptance by conduct of the architect’s offer.

4.89 – In relation to circumstances where the conduct of parties may lead to a finding a contract exists, in Intergrated Computer services Pty ltd v Digital Equipment Corp (Aust) Pty Ltd (1988), McHugh JA Said:

“In an ongoing relationship, it is not always easy to pinpoint the precise moment when the legal criteria of a contract has been fulfilled….

It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.”

4.90 – When a court is faced with the task of determining whether the parties’ conduct has given rise to the existence of a contract, and what the terms of the contract are, a two-stage process is engaged. In Hawkins v Clayton (1988), Deane J said:

“It is necessary to identify two distinct staves in the ascertainment of relevant terms. Those stages may well cover lap and it will often be unnecessary to distinguish between them in practice.

The first stage is essentially one of inference of actual intention: what, if any, are the terms which can properly be inferred from all the circumstances as having been included in the contract as a matter of actual intention of the parties?

The second stage is one of imputation: what, if any, are the terms which are, in all the circumstances, implied in the contract as a matter of presumed or imputed intention?”

4.91 – The first stage is to look to the parties ‘actual intentions’. In The Bell Group ltd v Westpac Banking Corp, Owen J said:

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“Consistent with the objective theory of contract, that is not a search for the subjective state of mind of each party, even if shared but not communicated. Rather it is a search for the “objective intention” of each party to be inferred from what is manifested by its communications and other conduct.

4.92 – It is also clear that inferring the existence of a contract is not easily achieved. The evidence pointing to such an inference must be clear – Australian Energy Ltd v Lennard Oil NL.

Acceptance must be communicated

4.94 – As a general rule an acceptance is only effective once it has been communicated to the offeror - Tinn v Hoffman & Co (1873).

Ken: This makes sense – for it would be unfair for an offeror to be legally bound without any knowledge of its acceptance.

Thus in Powell v Lee (1908), a school’s management committee had resolved to accept Powell’s application to be appointed as the school’s headmaster, but did not officially communicate their resolution to him. One of the committee members advised Powell privately of the decision. When another candidate was later selected and appointed as headmaster, Powell sued for breach of contract. The court held that there had been no contract because there had been no authorised communication of acceptance.

In Carlill v Carbolic Smoke Ball Co, Bowen LJ noted that the communication requirement is for the benefit of the offeror and gives rise to the meeting of the minds that is necessary or a contract to arise. The rationale for the requirement of communication is that it would be unfair for an offeror to be legally bound by an offer he or she has made without any knowledge of the offeree’s acceptance of it.

4.95 – As to when communication can be said to have occurred, the principles here are the same as with the requirement for communication of revocation of offers (4.57-4.67).

4.96 – The requirement of communication of acceptance is not universal. It can be dispensed with by the offeror. Furthermore, it is not required in cases where the postal acceptance rule applies.

Dispensing with the need for communication

4.79 – As the communication requirement is for the benefit of the offeror, he or she is at libery to dispense with the need for communication and thereby permit acceptance to arise without communication having taken place. Such dispensation can be express or implied – Carlill v Carbolic Smoke Ball Co.

Offers that lead to the creation of unilateral contracts, such as those involving offers of rewards, are ones in which the court will usually find that the need to communicate has, by implication, been dispensed with by the offeror – Carlill v Carbolic Smoke Ball Co. In such cases, there is no need to communicate acceptance of the offer because the offeror has made and offer that the offeree can accept by actual performance of its terms.

Thus, in Kuzmanovski v New South Wales Lotteries Corporation (2010), Rares J held that a rule relating to an instant scratchie lottery ticket, which stated that the lottery prize would be payable

25 only on presentation of the ticket, constituted an offer which was accepted by the presentation of the ticket. The Postal Acceptance Rule

4.98 – A commonly cited statement of the postal acceptance rule is found in Henthorn v Fraser [1892], where Lord Herschell said:

“Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages 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”.

The postal acceptance rue also applies to telegrams – Cowan v O’Conner (1888).

4.99 – This, when the rule applies, acceptance takes place at the time the letter or telegram is sent, and not at the later time when it is received.

Clearly, the effect of this rule is that communication of acceptance is not required in cases where the rule applies.

As a result, the offeror is unaware of the existence of the contract when it comes into effect. This leaves the offeror in a vulnerable position. Thus, where the offer by A to sell goods to B has been accepted by B by means of a letter in circumstances I which the postal acceptance rule applies, A will have unwittingly committed a breach of contract if A sells the goods to a third party before he or she receives B’s letter of acceptance, and will be liable to B for damages for non-delivery of goods.

4.100 – However, because of the potential risk to which the offeror is exposed by the application of the rule, courts have been keen to restrict further extention of its operation.

It does not apply to fax – Egis Consulting Australia Pty Ltd v First Dynesty Mines Ltd [2010].

In general the rule does not apply to telephone communications – Brindkibon v Stahag Stahl.

However, the rule did apply to an acceptance by telex in Leach Nominees Pty Ltd v Walter Wright Ptd Ltd [1986]. (See text pg. 70).

4.101 – In the circumstances where the postal acceptance rule does not apply, the fact that the form of communication is almost instantaneous is the primary reason, which the normal requirement of communication of acceptance applies. In effect, the law takes the view that in such circumstances it is as if the parties are actually in the presence of each other.

The postal acceptance rule does not apply to email communication – Olivaylle Pty Ltd v Flottweg GMBH & KGAA (2009).

(Communications Act for email communications applies here??)

It has also been suggested that the same reasoning operates to exclude the postal acceptance rule from applying to other forms of electronic communication wuch as those involving interactive websites.

Further, it is suggested that the rule does not apply to letters sent through private document exchange organisations or couriers, on the basis that these systems operate differently to the post

26 office. This is because a letter sent via either of these systems is not beyond recall by the sender, whereas it is generally is if it has been sent via the postal system.

4.102 – No single rationale justifying the postal acceptance rule…

One view focuses on the fact that at the time of posting the letter, the offeree has done all that he can reasonably do in order to communicate acceptance to the offeror. From that point on delivery of the letter is beyond the offeree’s control. Given that the offeror is in a position to exclude the operation of the rule, it is reasonable that the offeror should bear the risk in the period between the posting and delivery of the letter. That risk is so allocated by deeming acceptance to have taken place at the time the letter is posted.

4.103 – For reasons of practical necessity, when letters are used, one of the parties inevitably must accept the risk involved. On the one hand, if acceptance occurs when the letter is posted, the risk to the offeror is that he or she may do something that amounts to a breach of contract despite being unaware of the contract having come into effect.

On the other hand, if the acceptance occurs when the letter is received, the offeree is at risk because he has no way of knowing that the letter has arrived and thus does not known whether a contract has materialised.

As both risks cannot be avoided, the law has made the choice that the offeror should bear the risk.

4.104 – IN the operation of the postal acceptance rule, a number of points need to be noted:

1. The rule only applies if it is reasonable, contemplated or authorised that acceptance be by letter or telegram. Simply because a letter or telegram is used to make the offer does not mean that the postal acceptance rule applies to a letter of acceptance.

Tallerman & Co Pty Ltd v Nathan’s Merchandise, Dixon CJ:

“a finding that a contract is completed by the posting of a letter of acceptance cannot be justified unless it is inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act”.

2. The letter or telegram must be ‘properly’ posted, that is, properly addressed, have appropriate postage or other fees paid, and actually be deposited with the post office – In Re Imperial Land Company of Marseilles (1872).

It can be noted that there is a prima facie presumption that a properly addressed and posted envelope, which has not subsequently been returned, reached its destination in the ordinary course of the post - Australian Trade Commission v Solarex Pty Ltd (1978).

3. It is irrelevant whether the letter or telegram ever reaches its destination. As acceptance occurs when the letter is posted or the telegram is sent, its arrival at the address of the offeror is logically irrelevant – Household Fire & Accident Insurance Company v Grant.

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4. An offeror can exclude the operation of the rule at the time the offer is made. The key here is to establish that the offeror requires actual communication for an acceptance to take place - Household Fire & Accident Insurance Company v Grant.

Thus, if the offeror stipulates that the offer can be accepted by the offeree by notice in writing addressed to me’ on or before a particular date, the rule is excluded – Bressan v Squires [1974].

Similarly if the offeror stipulates that the offer may be accepted by ‘returning’ certain documents to the offeror by a certain date, acceptance does not occur when the documents are posted – Smoothseas Pty Ltd v Lawloan Mortgagees Pty Ltd (2998).

However, if the offeror merely states that an offer can be accepted on or before a particular date, that is not enough to exclude the operation of the rule – Holwell Securities Ltd v Hughes [1974].

5. Note must be made of the situation where the rule applies and the offeree sends a letter or telegram of acceptance, but, before it is received by the offeror, the offeree changes his or her mind, and advises the offeror by some speedier measn of communication that he (the offeree) does not wish to accept the offer. Here the question arises as to whether the letter or telegram of acceptance is binding and a contract is created.

There are conflicting views on this issue. Dunmore v Alexander (1830) supports the view that the withdrawal of acceptance is effective, for the simple reason the offeror is nonethewiser of the existence of any contract at that stage so withdrawal of the acceptance causes no harm.

However, New Zealand Decision of Wenkheim v Arndt (1873) suggests that the offeree’s alter rejection of the offer is ineffective and, having been formed at the time of posting, the contract remains on foot.

Acceptance and the date and place of Contract

4.106 – The date and place of the contract are important items of information. The rules of acceptance tell us when and where a contract was entered into.

4.107 – The date of the contract is the date of acceptance. This is the date that communication of the fact of acceptance takes place. Where the postal rule applies this is the date the letter is posted or telegram sent, not when it is received.

4.108 – The place of the contract is the place of acceptance. This is the place where the offeror is when communication of acceptance takes place. Where the postal acceptance rule applies it is the place from which the letter or telegram of acceptance was sent.

Alternative to Offer and Acceptance

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4.109 – Although offer and acceptance analysis works well in many cases, in some cases it is inappropriate or meaningless to try to conclude that a agreement resulted from one party making an offer and the other accepting the offer.

“Offer and acceptance analysis does not work well in various circumstances. One example is a contract for the transportation of passenger on mass public transport. Another example concerns the exchanges of contracts to sell land, which are hard to analyse in offer and acceptance terms.” – Heydon JA in Brambles Holdings Ltd v Bathurst City Council (2001).

‘Battle of the forms’ cases

4.111 – An important example of difficulties associated with apply offer and acceptance analysis in commercial contracts is with so-called ‘battle of the forms’ cases. The most common battle of the forms cases are those where A offers to purchase goods from B on its (A’s) terms and B accepts the offer buy only on its (B’s) terms. In resolving battle of the forms cases courts will examine the conduct of the parties as well as objectively interpret the documents. See Tekdata Interconnections Ltd v Amphenol Ltd [2010].

4.112 – 4.121 – See case of Butler Machine Tool Co v Ex-Cell-O Corp (England) Ld [1979].

Master Macready identified three approaches that have been used in the battle of the forms cases.

First approach – ‘last shot’ doctrine. See Tekdata Interconnections v Amphenol. “where conflicting communications are exchanged, each is a counter-offer, so that if a contract results at all it must be on the terms of the final document in the series leading to the conclusion of the contract”.

Second approach is the so-called ‘higher-status- doctrine. Under this approach, the status of the forms is examined and the terms on the form with the higher status established the terms of the contract. See Transmotors Ltd v Robertson, Buckley & Co Ltd [1980].

The third approach is the so-called ‘global’ or ‘synthesis’ approach. With this approach the existence of a contract is established without reference to the offer and acceptance.

Ken: As a fairly general rule communications between the parties can usually be characterised as a series of offers and counter offers until if there is an agreement, it is on the basis of the party who has ‘fired the last shot’ by sending off the last form which the other party then acts on – see the summary of Butler v Ex-Cello Corp (England) Ltd. [1979] 1 All ER 965 at paragraph 4.112, 4.115 Text.

Ken: This brings me back to the first point I made. In a sense, one could argue that the last shot theory is not really a case of an ‘alternative’ to offer and acceptance at all but really is itself a case of offer and acceptance of some sort (with the ‘acceptance’ being either expressly or impliedly constituted in the recipient acting upon the last document ‘fired’ off depending on what happened). Ken: The analysis of the Transmotors case at para 4.116 of your text was a case in which a confirmation of an offer to transport goods which contained terms that differed from the offer, was held to be of a ‘higher status’ than a response to the confirmation, in the form of an invoice, even though the invoice referred to the standard terms of the original offer.

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Contract Law week 3

Consideration

Text Ch 6. Casebook Ch 6.

Promise/Consideration questions: 1. Identify the promise breached/or being enforced. 2. Then identify who the promisee and promisor is in relation to the breached promise. 3. The promisee has the onus to show they suffered some loss, or show that the promisor made some gain or profit - therefore that the promise is ‘supported by consideration’

6.2 Promise: • Must have something of value given for that promise • I.E Promisee must give something of value to promisor for the promise, otherwise cannot succeed in action against the promisor for breach of contract/promise.

Consideration must move from the promisee.

Consideration may either be by a promise or by an act.

6.3. Consideration must be something that is of value in the eyes of the law (Thomas v Thomas).

6.6 Consideration cannot be ‘past-consideration’. i.e. at time of agreement neither party has performed its promise.

Bilateral agreements - consideration by both A and B is executory.

6.8 Agreement, in terms of consideration, can also be an exchange of a promise for an act. i.e. lost dog returned (this is a unilateral contract).

Unilateral contracts - acceptance is by the ‘act’, it does not need to be communicated. Unilateral contract, only one side is ‘bound’. The other persons are not bound to do anything if they don't wish to.

If no consideration, the no contract, but agreement or promise is then a ‘gift’. law does not enforce ‘promises of gift’.

Failure to carry out a promise does not mean there has been a ‘failure to provide consideration’ - or that there is no contract = rather it means the person who fails to carry out a promise has committed a breach.

What is consideration?

6.10 Two definitions for Consideration:

1. Definition as per ‘Benefit or detriment’ (Balfour v Balfour):

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“Some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”

(USE THIS DEFINITION IN MOST CASES)

2. Definition as per ‘Element of a bargain’ (Dunlop v Selfrige):

“An act or forbearance of one party, or promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”.

Thus the consideration is the price paid for the promise. Only promises which are “bought” are enforceable.

Consideration must be bargained for

6.16 Consideration must be given at the request of the promisor and in reliance upon the promisor’s promise.

In Bilateral contracts, this will be almost always supported (mutual promises are the consideration for one another).

6.18 However, in Unilateral contracts, must look at if the element of reliance exists (see Carlill v Carbolic Smoke Ball Co.)

Consideration can be “doing an act or fulfilling a condition” set out by a promisor. i.e. the inconvenience of using smoke balls for x amount of time.

6.23 By also clear above, for the promisees act to constitute consideration, it must be performed at the request, express or implied, of the promisor (Carbolic Smoke Ball).

6.25 Promisees performance must be in reliance of the promisors promise to be consideration. i.e. “was going to do it anyway” or “forgot about the offer until after the act was done” .R v Clarke - admitting did not act in reliance of the offer, rare, but could happen.

Only a Party Providing Consideration can Enforce a Promise

1. Consideration must move from the promisee, and 2. It need not move to the promisor

6.26 - 6.30 Only a party providing consideration may enforce a promise, but the consideration need not move to the promisor.

6.29-6.30 Joint promisee’s - only one need to give consideration to satisfy consideration for them both.

“Past-Consideration” is not Consideration

A situation where something is done before any promise to pay for it.

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6.31 - Roscorla v Thomas - R purchased horse from T. After sale completed, T promised horse was sound and ‘free from vice’. This was not true. No breach of contract because earlier purchase of the horse was past consideration, fresh consideration had to be given for T’s promise to be enforceable.

6.33. Exceptions do existing:

Forbes Engineering v Forbes – Exception to the past consideration rule. “Where the giving of the consideration and the making of the promise are substantially one transaction, the exact order of events is not decisive and the consideration is treated as executed consideration rather than past consideration”.

Pao on v Lau Yin Long - Court held where there has been performance of an act followed later by a promise to pay for the performance, the promise to pay is supported by consideration, and enforceable, if:

1. Earlier act was done at promisor’s request, and 2. Parties understood at the time the act was done it would attract some payment or remuneration, and 3. Payment or remuneration must have been legally enforceable had it been made in advance of performance of the act.

In this case, the consideration becomes executed consideration, not past consideration.

Consideration Cannot be Illusory

6.35 Illusory consideration - relates to circumstances in which it is claimed that there is consideration by the promisee of the performance of some act, but where there is also a discretion as to whether to perform that act. i.e. where discretion if to do the act at all, then no good consideration. However, if level of performance is up to the promisee (i.e. salary based on commissions), then this is good consideration.

Consideration need not be adequate - it must be sufficient

6.38 For the promisee’s act or promise to be consideration it must be of value in the eyes of the law. Consideration “does not have to be commercially adequate in the eyes of the law”.

“Courts will not seek to measure the comparative value of the defendants promise and of the act or promise by the plaintiff”.

Peppercorm principal - something of high value can be exchanged for a peppercorn.

“Parties are presumed to be able to appreciate their own interest and of striking their own bargain”.

When is consideration sufficient?

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Promise to perform Existing ‘Public’ law duty - an act of doing something you had to do by law is not good consideration.

Collins & Godfrey, an attorney was subpoenaed to give evidence in a court case. he had been promised payment for his attendance. The attorney attended court but was not called upon to give evidence. The question before the court was whether the promise of payment was supported by consideration from the attorney. The court held that a person subpoenaed to attend court is under a legal duty to give evidence and that a promise to pay that person for loss of time incurred in such attendance is a promise for which no valid consideration was given.

4.45 However, if a promise is to do more than is required by law, it is good consideration.

Glasbrook Bros v Glamorgon County Council [1925].

During a strike at Glasbrook Bros’ mine, the colliery manager asked the police station to police guard in the colliery premises to protect certain workers. The police agreed to garrison the colliery in return for payment at specified rates. Glasbrook Bros refused to pay. They argued that tehr was no binding promise to make the payments on the grounds that the police authorit had not given consideration because it was their public duty to protect property.

The House of Lords held that the police authority have consideration to support the promice to pay because they had done more than they considered necessary for the adequate protection of the colliery.

If law enforcement protect in certain situations to those who request it, it can be consideration. However, if help was not requested - no consideration.

Chief Constable v Wigan Athletics [2009]

A similar claim failed because the English Court of Appeal unanimously held that the football club had not, either expressly or impliedly, requested the special services.

Ward v Byham - fathers promise to pay the mother of their ex-nuptial child $1GBP per week was supported by sufficient consideration. As mother asked to ‘keep child happy’ was ruled to be above and beyond public duty. (check the facts of this case?)

Exception to the rule: casebook pg. 107, Lord Denning: “to perform an existing duty is sufficient consideration “so long as there is nothing in the transaction which is contrary to public interest”.

Performance of an existing ‘Contractual’ duty already owed to the promisor

6.48 Typical instance is with a variation to an existing contract. Such a variation must be by means of another “little” contract between the parties. i.e Cant say “I will pay $100 more for the work you were already going to do”. This is a promise not supported by consideration, as the work would have had to be done anyway, so the promise is not enforceable.

But… Consideration can be any ‘Practical Benefit’:

Pay ships crew more = men do more work = practical benefit is the consideration

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Pay contract more for work = reduce LD’s for late work = practical benefit is the consideration

6.53 - Williams v Roffey Bros - After entering into a contract to renovate a block of 27 flats, Roffey Bros subcontracted the carpentry works to Williams for a price of 20,000GBP. Williams experienced financial difficulties and informed Roffey Bros that he could no complete the job. Under the head contract, if Roffey Bros did not complete the work on time they were liable to pay liquidated damages to the owner of the block of flat for late completion of work. In these circumstances, the Roffey bros offered to vary the original contract by increasing the amount to be paid to Williams by 10,300GBP.

Williams accepted the proposal, did some more work but did not complete the job. Coffey Bros then engaged other carpenters. Coffey bros did not complete the head contract on time and had to pay liquidated damages to the owner for the delay in completion. Coffey bros refused to pay Williams for the work he had done after the promise to pay the additional money. Williams sued to revoker the outstanding amounts.

Roffey Bros argued that Williams had undertaken to do no more in return for the additional money than he already had to do under the subcontract, and therefore, Roffey Bro’s promise to pay the extra money was not supported by consideration. The court he'd that Williams had provided additional consideration for the promise of extra money. The consideration was the potential benefit to Roffey Bros of the work being completed on time, thereby potentially relieving Roffey Bros from liabilty for LD’s. Coffey Bros argued the consideration did not move from the promisee (Williams). However court found Williams provided consideration in that the practical benefit to Roffey Bros flowed from the agreement to vary the original contract.

Glidewell LJ set out the principals as follows:

I. If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for the payment by B, and II. at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain, and III. B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time, and IV. as a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit, and V. B’s promise is not given as a result of economic duress or fraud on the part of A, then VI. the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

Stilk v Myrick - Stilk a crew member on a ship on a voyage from London to the Baltic and back. During the voyage, two other crew members deserted ship and the ship’s captain agreed to pay extra money to the remaining crew members upon returning to London. The extra money was not paid. Still sued the captain. Lord Ellenborough held that there was no consideration for the promise to pay the increased wages. Under the original contract, Stilk and the other crew members contractually promised ‘to do all they could under all emergencies of the voyage”. As the desertion

34 of two crew members amounted to an emergency, Stilk was already under a contractual duty to help bring the ship back to London.

A similar case with contrasting outcome:

Hartley v Ponsonby - Hartley signed as a crew member on a ship’s voyage. The ship had a crew of 36 men. Upon its arrival in Port Phillip, 17 of the crew deserted, leaving only 19 men to sail the ship back to Bombay. Of those remaining men, only five had the training and qualifications to sail the ship. Ponsonby, this ships captain, promised the crew additional payments. These were never paid and Hartley sued.

The court held that Hartley had performed more than his existing contractual duty which was to work on a seaworthy ship. The ship had become unseaworthy because of the shortage of skilled crew, as a result, Heartly was under no obligation to continue with the voyage. Therefore Hartley had provided sufficient consideration to support the promise to pay the increased wages.

Performance of an existing Contractual Duty already owed to a third person

6.64 - is good consideration.

Compromise of a Claim or Forbearance to sue

Forbearance to sue - Where Peter does admit liability to John and agrees to pay / settle out of court. Here, John ‘forbears’ or ‘gives up the right’ to sue Peter.

If John wishes to enforce the promise of payment by Peter, john can say that promise is supported by consideration because John’s forbearance is the consideration of Peter’s Payment.

(Consideration by forbearance … see Balfour v Balfour definition of consideration).

Consideration aspect for Compromise is effectively the same as Forbearance to sue.

Forbearance means refraining from doing something which you may be entitled to do.

6.66 Compromise - Foskett defines compromise as:

‘The settlement of a dispute by mutual concessions, its essential foundation being the ordinary law of contract’.

Most cases are indeed compromises/settlements before a trial, often because of the prohibitive cost of proceeding to trial.

Compromise mean that Peter, without admitting liability to John, agrees to settle John’s claim out of court by agreeing to pay money to John.

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Is Peters promise to make payment to John under compromise supported by consideration?

John = Promisee (one trying to enforce the promise) Peter = Promisor

John has the onus of proving Peter’s promise is supported by consideration, and therefore, enforceable.

On one level Peter’s promise is simply a promise to pay some money to John where John does not have to ‘do’ anything.

If compromise is not binding, because Peter’s promise is not supported by consideration, then John could still rely on his original cause of action to sue, but the underlying idea and intention of John in trying to enforce the compromise in the first place is that the ‘compromise’ or ‘forbearance to sue’ will bring everything to an end without John’s having to go tot he trouble and effort of enforcing the original cause of action.

So John needs to prove that Peter’s promise is supported by consideration, otherwise the compromise is not enforceable. There are several tests as to how this might be demonstrated:

• Text 6.67 - John “will need to show that his claim is reasonable and not frivolous or vexatious.” • and John “must also show that there is liability on Peter’s part, or at least that John has a bona fide belief in liability on Peter’s part”. (Miles v New Zealand Alford Estate co). • OR “ there must be an honest belief that his claim would be successful if litigated” (Wigan v Edwards)

For example, applying the test and finding John’s claim was utterly hopeless to the extent that John never really though that he had a hope of succeeding in court, then by compromising the claim (and accepting some payment from peter), he is giving up nothing, because not only could he not succeed - he never though he could succeed in the first place.

The promise by Peter is unsupported by consideration.

However, if Peter has a bona fide belief his claim would be successful, then the consideration for Peter’s promise is that John gives up what he believes is a right to sue Peter. Thus analysed Peter’s promise would be ‘supported by consideration’.

The fact that John’s claim eventually turns out to be bad at law is irrelevant - what is important is that John’s claim should be reasonable and not rivals and at least that he had a true belief in the claim.

Tests

Miles v New Zealand Alfrod Estate Co.

Exact wording by Bowen LJ: “…if an intending litigant bona fide forbears a right to litigate a question of law or face which is not vexatious or frivolous to litigate, he does give up something of value.”

• By ‘giving up rights to litigate’ they are giving up something of value, and • the promisee needs to show that his claim is reasonable and not vexatious

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Spies v Commonwealth Bank of Australia

• The fact that B’s claim is ultimately bad in law is irrelevant and A’s belief n the lack of strength of B’s claim is also irrelevant.

Hurvcules Motors v Schubert

• That the fact of a ‘genuine dispute’ constitutes consideration.

Wigan v Edwards (Leading Australian case on this point)

Mr and Mrs Edwards agreed to purchase a house from Wigan, the builder of the house. The contract contained no express terms that the house had been constructed in a good and workmanlike manner. Before the date for completion of the contract, Mr and Mrs Edwards gave Wigan a list of defects in the house that required attention before they would complete the transaction.

Wigan promised to remedy the defects and Mr and Mrs Edwards paid the balance of the purchase moneys and moved in. Wigan did not do the remedial work and Mr and Mrs Edwards sued on Wigan’s promise. Wigan argued there was no consideration for the promise to remedy the defects.

The High Court held that the purchasers genuinely believed that they did not have to complete the purchase because of the defects to the house. The compromise of that belief was sufficient consideration for the promise to remedy the defects.

• The foregoing of a claim which the promisee genuinely believes to be valid would be good consideration.

The rule in Pinnel’s Case (1602)

6.70-6.77, Casebook 6.6

“Part payment of a debt is not sufficient consideration to discharge the whole debt”. i.e. if you owe me $100 and i say “repay $70 and that will clear the debt”, then my promise is not enforceable because you have not provided any consideration for my promise to forgo the $30. End result is I could sue to recover the remaining $30.

Unlike the rule of “compromise” above, where the creditor is trying to enforce the agreement, the Pinnel situation is the debtor who is trying to enforce the promise, and it is the debtor who needs to show that the payment of a lesser sum (or payment by instalments) is consideration to support a promise on the part of the promisor (the creditor) to discharge the whole of the debt. The debtor is seeking the enforce the promisors promise to discharge the whole of the debt.

Foakes v Beer (1884) 6.72 –

Pinnels Case was applied in this case. Beer obtained a judgment in court against Foakes for a debt. Foakes asked if he could satisfy the judgment debt by paying it off in instalments. Beer agree not to take any further action if Foakes paid a lump sum and the balance by instalments. Fakes complied with the agreement.

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Beer then claimed the interest that had accrued on the judgment debt. The house of Lords held that the interest was payable. Foakes did not provide consideration in return for the plaintiffs promise not to take any further action. Fakes had a pre-existing obligation to pay the whole judgment debt, which included and accrued interest. The mere payment by instalments of the judgment debt, less the accrued interest, was not sufficient consideration.

Exceptions to Pinnels Rule (6.73):

1. Agreement can be set out in a deed - deeds do not require consideration 2. Debtor agrees to pay earlier = consideration (but pay in instalments is NOT good consideration) 3. Pay or gift other than money (Horse, Hawk or Robe is good, law does not judge adequacy) 4. Equitable Estoppel 5. Where the payment of a lesser sum or the carrying out of some lesser obligation may be some sort of ‘practical benefit’ to the promisor - Williams v Roffey Text 6.75 (See below) 6. Where part payment is paid by someone else

Williams v Roffey Bros

Question arises as to whether the practical benefit rule can be used to overcome the consequences of the rule in Pinnel’s Case. if part payment of a debt results in a practical benefit to the creditor, Williams v Roffey Bros would suggest that there is consideration present.

(Foakes v Beer long predates Williams v Roffey and the present state of the law is represented by Williams v Roffey.)

Issues with Pinnel’s Case rule is that in certain circumstances taking payment of a lesser sum could be seen as a practical benefit as it could be argued if they don't accept the lesser sum, they may not received any payment at all. (See Casebook pg 110).

Most recent case (the last word on the subject) being Wolfe v Permanent Custodians Limited:

In this case, Permanent Custodians obtained judgment against Wolfe following default by the latter on a loan that as secured by a mortgage of his family home. Following the Judgment, Permanent Custodians agreed to stay execution of the judgment provided Wolfe complied with a schedule of monthly payments. If he did not, PC reserved the right to enforce the judgment.

The issue before the court was whether Wolfe had given consideration for PC’s promise to stay the execution of the judgment and accept payment of the judgment debt by instalments. Zammit AJ said:

“The law as it currently stands in this jurisdiction is that there is no binding authority as the application or non-application of Williams v Roffey Bros principles to the payment of debt. Accordingly, it is a question of the first principle involving the requirement that there be sufficient consideration. I consider there was sufficient consideration moving from Mr Wolfe to PC.”

(i.e., applying the Foakes principal, there is not consideration, however the court found there was consideration by applying the ‘practical benefit’ test from Williams v Roffey, the practical benefit being PC avoiding the inconvenience of having to take steps to execute upon, and re-sell the property).

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Ken’s commentary on this case: “the precise parameters of the application of Wolfe are not fully explored… further the decision was one of a single judge… I am not sure it can be said with confidence that the principles in that case can now be taken as read.”

Deeds and Consideration

6.77

Simple Contract: Orally or by writing

Formal Contract: Agreement by particular written form known as a deed. Also known as a document under seal.

6.78 Consideration is always necessary in a simple contract.

Consideration is not required for agreements set out in deeds.

“If they bound themselves by deed it is considered that they must have determined upon what they were about to do”.

Thus, if B owe A $100 debt, and A promises in a deed to release B from the debt, A’s promise is binding even though B provides no consideration for A’s Promise.

If A’s Promise was not set out in a deed it would not be binding.

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Contract Law week 4 & 5

Intro to Estoppel / Estoppel

Text Ch. 36 Casebook Ch. 36

Reading: Walton Stores (Interstate) Ltd. V Maher (1988) - see extract in Paragraph 36.2 Casebook (estoppel)

Walton Stores (Interstate) Ltd V Maher (1988) (pivotal case in Australia in which the nature and principled basis of equitable estoppel is discussed):

The Mahers owned commercial premises in Nowra which Waltons was interest in leasing. Walton needed to relocate its business in Nowra to new premises and the Mahers’ site was available. They agreed that the Mahers would demolish the existing premises and erect a new building to meet Waltons’ requirements. A draft agreement for lease was sent to the solicitors for the Mahers and some amendments were discussed. Waltons’ solicitors indicated that they expected their client’s agreement to the alterations and said that they would let the Mahers know if the amendments were not acceptable. The Mahers’ solicitors send the amended lease, duly executed by the Mahers, to Waltons’ solicitors ‘by way of exchange’.

The letter was not acknowledged by Walton’s’ solicitors until two months later. The Mahers began to demolish the existing premises, as time was critical if they were to complete the demolition and the new construction in time for the start of the lease agreement. It was later established in court that the Waltons knew what the Mahers were doing. However, after receiving the letter and executed lease, Waltons reconsidered its position and a few months later wrote to the Mahers’ solicitors saying that the lease had not been executed by Waltons and that Waltons was not proceeding with it. The Mahers sued Waltons for damages for breach of contract on the basis that Waltons was estopped from denying the existence of the lease.

The issues before the high court were whether Waltons could be estopped from denying the existence of a binding contract to take a lease of the Mahers’ premises at Nowra and, if so, whether Waltons should be ordered to pay damages rather than to specifically perform the lease agreement.

Decision: The High Court unanimously dismissed Waltons’ appeal and upheld the lower courts’ order that damages be paid to the Mahers. Mason CJ and Wilson J, in joint judgment found for the Maher’s on the basis of equitable estoppel.

There are different types of Estoppel: 1. Estoppel by judgment 2. Estoppel by deed 3. Estoppel by representation 4. “High Trees” estoppel (named after famous case Central London Properties v High Trees).

Working definition of Estoppel (36.2) (citing a passage from The Bell Group case):

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“[Estoppel] is a doctrine designed to protect a party from the detriment that would flow from that party’s change of position if the assumption or expectation that led to it were to be rendered groundless by another”.

Estoppel is useful in cases where:

• There is an absence of consideration for a promise, thus no contract or contractual relief - Promissory Estoppel

Common Law Estoppel

36.6-36.10

Note: Use Common Law Estoppel for cases where representee acted in reliance on an assumption of fact (past-tense), NOT a promise (future-tense).

‘Common law’ estoppel is summed up as (Grundt v Great boulder Pty. Ltd. Gold Mines Ltd.):

“The law will not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations.”

There is an emphasis on the words ‘assumption of fact’ - this immediately highlights the limitations of the application of ‘common law’ estoppel.

Common Law estoppel is based on an assumption of facts - Common Law estoppel cannot enforce a promise.

E.g enquiring if you have paid your insurance premium?

Insurer: “yes your premium has been paid and you are “covered”” - no promise, but had simply stated a fact.

In this instance, if you make a claim under the policy, insurer advises you that as the premiums had not been paid, you are not, in fact, insured for the damages that you have incurred.

Having made the original representation that you had in fact ‘paid your premium’ the insurance company is ‘estopped’ from resiling from the representation that you had paid your premium and were covered. You have suffered detriment in that but for the representation you would have immediately tried to pay the premium (and would have been covered).

Alternative:

Insurer: “Yes you would be covered in the event of an accident” - this is a promise, and a promise is not and assumption of fact (see definition above).

Common Law Estoppel can only protect from ‘assumption of fact’ not ‘assumption of promise’.

Primary limitation of ‘common law estoppel’:

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“Representations of future intention (that is promises) were to be governed by the presence of a contractual relationship between the representer (the person making the representation) and the represent (the person hearing and relying on the representation) with a price being paid for the promise in the form of sufficient consideration.”

In other words, you cannot use the concept of common law estoppel to ‘enforce’ a promise - the enforcement or remedies of promises can only be done under the principals of contract i.e. offer, acceptance & consideration.

A Promise to do something is not an ‘assumption of fact’ and therefore would not have been covered by the concept of common law estoppel.

A promise is to represent that you are going to do something in the future, if the other person relies on that statement, even if you go back on your word (or resile) it is not ‘caught’ by the doctrine of common law estoppel.

Examples of promises (not fact):

3. I’m going to lease you the land 4. I agree to buy that car 5. You will be covered under your policy (all not covered by the doctrine of common law estoppel.)

EQUITABLE ESTOPPEL IS THE BRINGING TOGETHER OF PROMISSORY ESTOPPEL AND PROPRIETARY ESTOPPEL

Promissory Estoppel

36.12 - 36.29

Note: Use in cases where pre-existing contractual relationship, and then Promissory Estoppel is used as a “shield” to stop the promisor enforcing their strict legal right if a representation was made otherwise.

36.01 - “The very essence of promissory estoppel is that a promisor is precluded from going back on his or her promise even though the promise is not supported by consideration”.

‘Promissory Estoppel’, unlike common law estoppel does affect the enforcement of promises (i.e. someone promising to ‘do’ something in the future rather than some statement of existing fact (past-tense), as with common law estoppel).

Leading case - Central London Property summarised:

1. There must be a pre existing legal relationship between the parties (in Central London, the parties were lessor and lessee).

2. There needs to be a statement by one party that it would not enforce its strict legal rights: in the Central London Property case, relevantly a statement was made that the lessor would accept a

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reduced rent (i.e. this was the ‘promise’ - ‘I will accept a reduced rent etc’. - the promisee is thus the lessee).

3. The lessor subsequently in 1945 (after the war) sued for rent at the full rate.

4. It was held that notwithstanding the promise, the lessor was entitled to recover the full rent from 1945 but that it could not sue to recover the rent that was foregone for the previous period.

5. The promise to accept a reduced rent was unsupported by consideration on the part of the lessee (here, it is the promisee as he was trying to enforce the promise).

The reliance on the doctrine had effect that it was a ‘shield’ i.e. that is ‘protected’ the lessee from a claim in respect of the foregone rent from 1940-1945, but could not be a ‘sword’ that could enforce a promise to accept a reduced rent from 1945 and following.

Hence the well known saying (prior to Walton Stores) that the doctrine of promissory estoppel is only a ‘shield and not a sword’ (Combe V Combe para 36.17).

Limitations of promissory estoppel (36.17):

I. Promise had to be in the context of one intended to affect a pre-existing legal relationship between the parties (see Combe v Combe).

II. Promissory estoppel could only be used as a defence to an action brought by the promisor against the promisee. It was said that it could only be used as a ‘shield‘ and not as a ‘sword’ (Combe v Combe).

Therefore in High Central London v High Trees House, HTH could use promissory estoppel as a defence to estop HCL from claiming the foregone (past) rent, as it met there was an existing relationship, and promissory estoppel could therefore be used as a ‘shield’ by the promisee to enforce the promise of reduced rent, but cannot be a ‘sword’ for the promisor. i.e. - the doctrine was a shield which prevented the lessor from recovering the foregone rent from 1940-1045 - but could not be used as a ‘sword’ by the lessee to enforce the lessor to comply with its promise thereafter to accept a lower rent.

(This makes sense because if its just a ‘promise’ of lower rent, its not in a contract and is not binding, therefore once it is communicated that they no longer intend that promise, the promise of low rent no longer exists).

Proprietary Estoppel

Note: Use Proprietary Estoppel where related to property law. Proprietary Estoppel can be used as a “shield” as well as a “sword” - the “sword” being that it can create fresh legal rights where none previously existed.

Proprietary estoppel could operate to create fresh legal rights i.e proprietary estoppel always was able to act as a sword as well as a shield. (36.19)

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Proprietary Estoppel operates in relations to landowners only:

“Proprietary estoppel operates to restrict the legal rights of landowners if they have encouraged the belief in another, or at least acquiesced in that other’s belief, that he or shed has some entitlement over the proper and that belief has been acted upon.”

E.G by some alteration or improvement having been made to the land.

However, no proprietary estoppel claim is available if the plaintiff and defendant have a legally enforceable contract relating to the property (see Giumelli v Giumelli). In Barnes v Alderton, Young CJ observes: “Contract and proprietary estoppel are mutually exclusive”.

Notwithstanding the above, this does not mean where there is a contract proven to be in place that you are precluded from seeking relief in estoppel, but rather it means the relief under a contract is different from estoppel base relief.

To clarify above further, the requirements between contract relief and proprietary based estoppel are different. An estoppel does not required there to be mutually binding promises, supported by consideration - merely a non contractual promise that was relied on etc. Relief in estoppel is not based on the enforcement of the promise - but on the detriment that has been caused by reliance. A litigant, who is not confident that a contract has been formed, might well put his case on the alternative.

If a contract is formed, it is quite likely that the litigant might prefer not to seek any estoppel based relief, but it would not be quite the same as saying that “if it can be shown I have a contract then I cannot seek estoppel based relief” – Ken: this is an error that is made quite often in the exams - it is a significant error!

Consolaro v Consolaro - (Ken was council for defence):

The action brought by an eldest son against his aged father seeks a declaration and order that the defendant, Mr Phillip James Consolaro, who presently is the sole registered proprietor of a tract of farming land on Great Northern Highway, upon which there is also located a commercial sandpit, holds that land, as to a one-third undivided share, on trust for the plaintiff, Mr Ross Joseph Consolaro. The Plaintiff seeks order that the defendant should transfer that third interest in the land to him immediately, or alternatively the the interest should be transferred to him on the death of his father.

Plaintiffs claim is that from an early age he worked on the various Consolaro farming properties and gave up opportunities to pursue other trades or careers on the faith of a succession of promises made by his father, that in return his name would be put on the title deeds to the family properties as an equal one-third owner of the lands together with his father and mother. After a falling out, and working for the family farm on minimal wage for 30 or more years, it was ruled the plaintiff should have his one third share in the properties.

EM Heenan J at 286 “I am satisfied that these assurances were given on the occasions particularly described by the plaintiff, but that there was, generally speaking, repeated references or allusions to them… many times when the plaintiff expressed dissatisfaction at being expected to work for relatively low wages

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Consolaro, para 18 lists the facts:

• Between 1966 and October 1993 the defendant and the defendants wife persistently represented to the plaintiff that if the plaintiff carried out and permitted the specified activities, the plaintiff would in consideration thereof receive an interest in the said land as beneficial co-owner. • Particulars of ‘Specified activities’: carrying out of husbandry works on the land, and on Deepdale etc. without any or only nominal remuneration carrying out of Fuel Depot activities for the Defendant etc. Permitting the defendant and his wife to take certain of his weekly wages Permitting the defendant and his wife to receive the income arising from various commercial activities undertaken by the plaintiff

Are estoppel (any sort) and contract really the same thing?

Does estoppel give rise to a binding contract? particularly in the context of proprietary estoppel (which does give rise to prospective or fresh rights?)

For a contract, conventionally, you would need an offer and an acceptance of the offer. The existence of an offer and acceptance would normally be essential to the formation of a contract (leaving aside consideration for now). Let us ‘test’ the question of whether estoppel and contract are really the same thing, by asking ourselves whether you need an offer and acceptance for relief based on estoppel.

So for an estoppel to operate, the requirement for some validly constituted offer is often missing. The basis for an estoppel as seen from the definitions above, is the making of a representation.

Test by: Taking the typical proprietary estoppel type representation (eg Consolaro, or the famous Giumelli cases) ‘if you work on the land, i will ensure that in due course you will get an interest in the land’ or ‘I can’t take the unit with me to the grave, work on the orchard and half of it is yours’. - now that simply would not translate into an ‘offer’ and would not be characterised as an offer. You could validly test the quality of the statement to determine if it has the quality of an offer in the technical sense: how long do I have to work for? Does the entitlement to the property materials if i work one day/one week/one year?

Such a statement would not have the character of a offer on the part of an offeror that if ‘accepted’ a binding contract would come into existence. (Because it is not precise enough to be an offer - more left to be negotiated).

Could the promisee purport to ‘accept’ by working for two weeks? would the landlord/promisor be bound to convey the land in such a situation? the answer would be ‘probably not’.

Estoppel and contract formation go hand in hand (the study of contract cannot be complete without both).

What type of ‘representation’ can form the basis of an estoppel?

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See para 18 of Consalaro above. “Between 1966 and Oct 1993, the defendant and also the defendant’s wife at intervals of generally not more than three-monthly persistently represented to the plaintiff that if the plaintiff carry out and permitted the Specified Activities the plaintiff would in consideration thereof receive an interest in the said Land as beneficial co-owner”.

Giumelli the representations were fairly general in nature - ‘ if you stay and work on the land’ ‘work on the family business and you will get part of the property’ etc.

These would not have the quality of ‘offers’ capable of acceptance. -For this reason it can be seen that the basis for estoppel and contract are not the same thing.

Walton Stores - the ‘consolidation of promissory and proprietary estoppels’

Text 36.27-36.29 Walton Stores 36.2 Casebook

Walton Stores probably is the most significant single case in contract to have been decided in recent Australian legal history.

Summary of the facts: • Maher owned commercial premises which Walton was interested in leasing • An agreement/arrangement (loosely) was reached that Maher would demolish the existing premises and erect a new building to meet the specifications of Walton as pert of an intended leasing. • A draft agreement for lease was sent to Maher’s solicitor. • Walton’s solicitor indicated they expected their client’s agreement to the alterations and said they would let Maher know if the amendments were not acceptable. • Maher’s solicitors sent an amended and executed lease to Walton’s solicitors by way of exchange. • Waltons did no even formally acknowledge the same until two months later. • Maher began to demolish the existing premises - and it was found that Walton knew what the Mahers were doing. • Walton, after a few months, wrote to the Mahers to say that the lease had not been executed by Walton and that Walton was no proceeding with it.

Maher sued Walton for damages for breach of contract on the basis that Walton was estopped from denying the existence of the lease.

The majority of the High Court found for the Mahers on the basis of equitable estoppel and it is said that in so doing, the ‘consolidated’ the theories of promissory and proprietary estoppel into a single principle of ‘equitable estoppel’.

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Contract Law week 5

Estoppel

Ch. 36 Text Ch. 36 Casebook Waltons Stores

Recap on week 4 Intro to Estoppel: • Working definition of Estoppel (all types) (36.2) (citing a passage from The Bell Group case):

“A doctrine designed to protect a party from the detriment that would flow from that party’s change of position if the assumption or expectation that led to it were to be rendered groundless by another”.

• Common law estoppel - the kind of estoppel relation to assumptions of fact only (not future intention - future intentions are a promise and are therefore a contractual relationship). Promises are outside the scope of common law estoppel.

• Promissory estoppel (“High Trees”) - which does relate to promises. Where parties are in a pre- existing legal relationship, promissory estoppel can be used as a ‘shield’ to prevent the other party from enforcing his strict legal right, (i.e. the defence to a claim by the other party for the foregone rent). But it cannot be a ‘sword’ in order to enforce a promise for that other party to accept a reduced rent thereafter.

Promissory estoppel did not operate to create a new right where none had previously existed.

• Proprietary estoppel - relates to the compensation for reliance on assumptions concerning promises to grant interests in land. Usually when someone made a representation concerning the fact of the grant of an interest in land, and the other released on it to its detriment. Unlike promissory estoppel, proprietary estoppel did create new right - (i.e. to compensate the represent for his reliance on the assumption he would be granted an interest in property). A new right can be created where none previously had existed, and so could be used as a sword as well as a shield.

Proprietary estoppel did not extend its scope to apply to representations concerning the fact that a contract had been brought into existence - merely to promises concerning the grant of an interest in land. I.E Waltons Stores type of estoppel was the type where the very subject matter of the representation that was relied on was the existence of a contract, where the subject matter of proprietary estoppel was the promise of the grant of an interest in land.

• Equitable (Waltons Stores type) Estoppel - provided a means of compensation for the injury suffered in reliance on the assumption that a contract did exist.

• The very important part of Waltons Stores was that it “merged” (or consolidated) proprietary and promissory estoppel into one “single, and broader principle of equitable estoppel” (36.27).

“It makes perfect sense - after all, why recognise the intervention of estoppel when it comes to a representation concerning an interest in land, but not when it comes to the making of a promise?”

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“Fundamentally someone has just made a representation which another has relied upon and at its very core, that is what the high court was saying”

• Waltons Stores type estoppel relates to compensation for injury suffered by a party if he is led to believe that a contract exists but where the other party then denies the existence of the contract.

• Waltons stores type estoppel thus provided a means of compensation for the injured suffered in reliance on the assumption that a contract did exist and thus was beyond the scope of promissory estoppel (in which parties were already in a contractual relationship and which provided a remedy only in the limited sense of preventing a party from insisting on his strict legal/contractual rights). It also went beyond common law estoppel which applied only in respect of representations of fact.

Contract Vs Relief based on Estoppel

Questions on contract and estoppel may be very similar, however if the promise is supported by consideration, you get a different type of relief, which is based on contract. Whereas in the case of estoppel, the relief is based on detriment.

A question might test a number of topics. E.G estoppel question may also test fact of agreement and/or consideration.

Waltons Stores

Maher sued for breach of breach, the cause of action was described as being estoppel from denying the existence of a lease. At that time there was no type of estoppel which catered to this situation (promissory = existing contract, sword not a shield, defence against a strict legal right. Proprietary = property only).

• Before Waltons Stores there was no “type” of estoppel that catered to this situation, namely compensation for injury suffered in respect of reliance upon a representation that a contract (such as a lease) had existed or would come into existence. Such representation was beyond the scope of promissory estoppel and did not fall within the boundaries of what was the regarded as proprietary estoppel (as it did not contain at its core a promise concerning an interest in land), but rather concerned a representation that a contract had existed or would come into existence.

• The case went all the way to the High Court, the Mahers won 5-0, but for different reasons:

• The majority judgment (Mason CJ, Brennan and Wilson JJ) found on the basis of ‘equitable” estoppel.

• The minority found on the basis of common law estoppel. (Common law estoppel was confined in its operation to representations of fact, whereas Waltons Stores minority judgment concerned a representation about future conduct or intention. Gaudron J found for the purposes of her judgment, that Maher had conducted itself on the basis of a factual assumption that contracts had been exchanged. This was clearly an assumption of fact and would have fallen within the scope of the old common law estoppel.

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• The majority however did not think that any such factual assumption arose, which is why there was a need to turn to the question of whether Maher was entitled to relief based on the expectation or promise relating to the lease.

• It is the judgment of the majority (based on an expectation or promise and the relief that follows) that was truly ground breaking.

• Judgment of the majority is of far greater practical importance and indeed the judgment of His Honour Brennan J is regarded as one of the most jurisprudentially significant passages in modern Australian contract history.

• The majority judgment now permitted the use of estoppel to be applied to enforce a cause of action in the sense of enabling compensation for departure from an assumption as to a matter of future intention, that is to say, the making or existence of, a contract.

Proprietary and Waltons Stores estoppel are very similar. One simplistic way to distinguish the two is to say that the subject matter of proprietary estoppel was not the existence of a contract but rather the promise of an interest in land.

Waltons Stores did not have the effect of extinguishing the existence of proprietary estoppel which continues to exist - it merely “fused” various types of estoppel, of which the “old” proprietary estoppel was a genus.

(Consolaro and Giumelli cases are classic cases of proprietary estoppel which continued to be treated as such).

What the Mahers thus wanted to do was to ask the court to “drive (the old, Central London Property type of)) promissory estoppel one step further…” Casebook pg 808:

“But the Mahers ask us to drive promissory estoppel one step further by enforcing directly in the absence of a pre-existing relationship of any kind a non-contractual promise on which the representee has relied to his detriment.”

The nature of the relying party’s assumption is important in relation to the type of estoppel that arises: If the assumption is one of an existing fact, a case of common law estoppel arises.

If the representor makes a representation that they will act in a particular way in the future, it is a case of equitable estoppel (or the sub-branches of equitable estoppel; promissory if under a current contract; or proprietary if in relation to land).

“Non contractual promise” and “Acted to his detriment”

“Non contractual promise”

(A voluntary promise, not supported by consideration i.e. if supported by consideration then it is an agreement/contract).

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Estoppel of any sort concerns “non-contractual promises”, (contractual promises are covered by offer and acceptance and a binding agreement). Contractual promises must be supported by consideration on the part of the promisee to be binding upon the promisor.

A non contractual promise is a promise that is not contractually binding. It is a promise that does not form part of a binding contract and is not given in exchange for another promise (in which case it simply would be part of a binding contract if supported by consideration).

Example 1:

Waltons Stores was a classic example. There, the promise made to the Mahers was along the lines we will exchange contracts and therefore we (impliedly) promise to grant you a lease. But at that stage, no binding agreement to grant a lease has actually been made.

A non contractual promise has also been described as a “voluntary promise”. In Waltons Stores, it is made “voluntarily” by one party in the sense that it is not made by way of exchange or as part of the process of any offer or acceptance.

Unlike a contractual promise, (ie one that was made by way of an exchange of promises in the course of the making of a contract), a non contractual promise (which may form the basis of an estoppel) can be withdrawn - so if say Walton had very early in the piece and before Maher had spent money said that ‘we are not going to lease the premises from you” then Maher would not have had any grounds for relief whatsoever.

Example 2:

A tenant is in the middle of a 10 year lease. Assume that the landlord knows that the tenant is keen on having an extension. The landlord one day says: we will give you an extension at the end of 10 years on the same terms so you can stay another 10 years. The tenant relies on the assumption that the landlord will give him an extension for another 10 years by doing things like spending a significant amount of money on improvement and fixtures and he foregoes the opportunity to procure another set of premises.

There is no exchange of promises but what happens is that the tenant does things in reliance on the assumption that he would have a further ten years to go after his present period of 10 years expires, and will suffer detriment if after the tenth year, he was asked to up and leave.

Some situations may appear to straddle the two concepts - example:

1. “If you work on the land and give up your job, the land will be yours on day, I can't take it with me to the grave”. - Likely to be characterised as proprietary estoppel (and even prior to Waltons Stores the representer would have had his right to relief).

2. “I have led you to believe that we have a binding agreement whereby I will sell out his land for a low price, as it is not something I can take with me to the grave” - the representation itself is the fact of a promise in respect of which no relief would have flowed absent a concluded agreement prior to Waltons Stores itself (and one would then need to resort to the principles articulated in Waltons Stores to ascertain if any right to relief did exist.

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