INTRODUCTION TO CONTRACT LAW
Gibson v Manchester City Council  1 WLR 294
Gibson fills out a form to buy property off the Council. He submits the
form. A new council is elected which refuses to sell the house.
It was held that the words „maybe be prepared to sell,‟ and „if you would
like to make a formal application to buy…‟ in the Council‟s letter prevent
the letter from being taken as an offer.
Carlill v Carbolic Smoke Ball Co  1 QB 256
CSB Co posts an ad stating that a £100 reward will be payed to anyone
who contracts the flu or a cold whilst using the carbolic smoke ball, and
that £1000 is deposited with a bank „to show our sincerity.‟ Carlil uses
the ball and contracts the flu.
It was held that the ad contained an express offer to pay the award. It
was not a „mere puff‟ because money was deposited „shewing our
sincerity.‟ Carlil accepted the offer by performing the act (unilateral).
The offer was open to anyone who contracted the flu within a reasonable
time after contracting the flu.
MacRobertson Miller Airline Services v Commissioner of State Taxation
(WA) (1975) 133 CLR 125
Can a ticket produced by MacRobertson be construed as an „agreement
or memorandum of agreement‟ for taxation purposes? Are terms on the
Held that the issue of the ticket by MacRobertson constitutes an offer by
the airline. The passenger may accept this offer after they have been
given a reasonable opportunity to read the conditions. The airline is not
in contractual relations with the passenger until they are provided a seat
on the plane. There is no promise by the airline to carry the passenger
until this point.
OFFERS DISTINGUISHED FROM INVITATIONS TO TREAT
Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd  1 QB 401
Boots runs a chain of self-serve pharmacies. A pharmacist always supervised
the cashier. The Poisons Act required the sale of certain medicines to be
supervised by a registered pharmacist, which PSGB alleged Boots was not doing.
It was held that goods on display were no more than an invitation for
customers to choose what they decided. The customer offers to buy the item
by presenting them at the register. The shopkeeper can then choose to accept
this. If customers were bound as soon as they chose an item (as PSGB
thought) they would have no right to replace the item for a similar, more
AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454
AGC puts land up for auction. The highest bid does not meet the reserve. AGC
permits the auctioneer to withdraw the reserve. A bid lower than McWhirter‟s
is accepted. He sues.
It was held that there is no need to distinguish between a sale with or without a
reserve. The auction remains an invitation to treat. Every bid is no more than
an offer, which is not binding unless assented to. The auctioneer can accept
any of the offers he is instructed to.
Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd  1
Harvela, the Trust and Sir Leonard owned shares in a company. The
Trust offers to sell its shares by way of tender. Harvela makes a fixed
bid. Sir Leonard makes a bed referencing Harvela’s: his bid would be x
amount higher than Harvela‟s.
It was held that a referential bid cannot be made, because if it could a
person bidding a fix price could never win. The Trust could not accept the
referential bid, nor could Sir Leonard
Hughes Aircraft Systems International v Airservices Australia (1997) 76
Airservices invites Hughes and another company, Thompson, to enter a
tender process for an advanced air traffic system. Airservices sets out
the selection criteria to both parties. Airservices accepts Thompson‟s
offer and not Hughes’ without evaluating the offers with reference to the
It was Held that the letter that set out the criteria was not a mere
invitation to treat, and upon signing it the parties were bound by its
stipulated process. Upon lodging its (Hughes) final offer, the terms in the
letter received contractual force.
TERMINATION OF AN OFFER
2 Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674
Goldsbrough Mort pays 5 shillings to Quinn for him to keep an offer for
the purchase of land open for a week. Before the end of the week Quinn
repudiates that offer. Nevertheless, Goldsborough Mort accepted the
offer within the week. Quinn denied the existence of an enforceable
It was held that „a promise to keep an offer open for a specified period is
not binding (so that the offer can still be revoked at any time) unless the
promise is made in a deed or is supported by consideration.
Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR
Mobil offers extended tenure to Wellcome (franchisees) if they achieve
a score of 90% in judging over the next 6 years. Offer was accepted by
signing a tear of slip. Later, Mobil announced it would not be granting
tenure as part of the plan.
It was held that because the offer because the proposal was too vague to
give to a contractual obligation. But, if they were wrong, there is no
universal proposition that the offeror is not at liberty to revoke it after the
offeree has embarked upon the sought means of acceptance. Further,
the offer could be revoked because the offer actually benefitted the
Lapse and death of offeror
Fong v Cilli (1968) 11 FLR 495
A contract is drawn up for Mr Goon (Fong) to transfer land to the Cilli.
Luigi Cilli is informed of Fong‟s death. The contract is forwarded to Luigi
It was held that an offer cannot be accepted if the offeree is aware of the
offeror‟s death at the time the offer is accepted. Since Luigi executed the
agreement, and was aware of Mr Goon’s (the land owner‟s) death, a
contract was never formed.
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57
Laybutt owns a piece of land that he offers to Amoco. Before he sells it
he dies, leaving his wife as the sole executor of his state. Amoco accepts
the offer and serves it on Laybutt‟s widow.
It was held that upon death, any contractual responsibilities pass on to
personal representatives. This does not apply if the contract depends on
the personal skills or judgment of the deceased. Thus, there is no reason
for which the option to buy could not be exercised by Amoco.
Failure of condition and changed circumstances
3 Dysart Timbers Ltd v Neilson  NZSC 43;  3 NZLR 160 (NEW
Before appeal, Neilson offers to settle out of court after being sued by
Dysart, who accepts. The Supreme Court accepts the appeal. Nielson‟s
lawyers withdraw the offer, arguing that it was implied in the offer that the
leave for appeal application would be withdrawn before the Supreme
Court made a decision.
It was held that an offer automatically lapses if there is a fundamental
change in circumstances before the offer is accepted. But, the leave for appeal
was not a fundamental change and the appeal was dismissed.
Rejection and counter-offer
Stevenson, Jaques & Co v McLean (1880) LR 5 QBD 346
Defendant offers Plaintiff steel at a price. Plaintiff sends a telegram
asking if the Defendant will accept „forty for delivery over two months, or
if not the longest you will allow.‟ Defendant doesn‟t respond. Later,
Plaintiff accepts the first offer, but the Defendant sells steel to another.
It was held that the Plaintiff‟s question was not a rejection or counter
offer, but a „mere enquiry.‟ The rejection was not effective until it reached
the plaintiffs, even though the Defendant was at liberty to revoke the
offer until Monday.
CONDUCT CONSTITUTING AN ACCEPTANCE
Smith v Hughes (1871) LR 6 QB 597
Smith owns oats. Hughes inspects the oats and offers to buy them. The
oats were delivered, but Hughes was not happy with them, as they were
new oats, whereas he thought the agreement was for old oats and
refused to take them.
It was held that, whatever a man‟s subjective intentions may be, if he
conducts himself in such a way that the other party believes that he is
assenting to the party‟s proposed terms, and upon that belief the party
enters into the contract, the man conducting himself is bound by those
terms regardless of his subjective beliefs.
Taylor v Johnson (1983) 151 CLR 422
Ms Johnson enters into a contract with the Taylor children to sell her lots
4 of land at a price of $15000 overall. Ms Johnson thought she was selling
her land for $15000 per lot, and thus refused to sell her land. Taylor sued
for specific performance.
It was held that the objective theory of contract law (manifestation of
intention rather than actual intention) is „in command of the field.‟
However, the subjective theory was applied here, as a person who
makes a serious mistake as to the content of a contract may be entitled in
equity if the other party knows that the person is entering into the contract
under a mistake, and, that party makes no effort to make the other party
aware that they are entering into the contract under a mistake.
Fitness First (Australia) Pty Ltd v Chong  NSWSC 800
Ms Chong joins up with Fitness First on certain terms, and does not
read her contract before signing it. The contract contains a term
stipulating that she pays a $200 cancellation if she terminates within the
first 12 months. She cancels her contract and refuses to pay the fee
arguing she was not aware of it.
It was held that a valid contract does not require both parties to be ad
idem, or of one mind. The general rule in this case is that a party assents
to all the terms of a contract it signs.
CONSCIOUSNESS OF THE OFFER
The Crown v Clarke (1927) 40 CLR 227
Clarke sees a proclamation that „£1000 [will be payed] for… information
as to a murder.‟ He is charged with that murder, and makes a statement
leading to the arrest and conviction of the actual murderer. WA Gvt
refuses to pay the reward.
It was held that „acceptance and performance of condition… involve that
the person accepting and performing must act on the offer. Clarke did not
act on the faith of, or in reliance upon the proclamation, and thus was not
entitled to the reward.
SILENCE AND ACCEPTANCE INFERRED FROM CONDUCT
Felthouse v Bindley (1862) 11 CBNS 869; 142 ER 1037
Plaintiff writes to Defendant that he wishes to buy his horse, adding „if I
hear no more I consider the horse mine.‟ The Defendant had directed his
auctioneer not to sell his horse, but it was sold anyway, meaning the
Plaintiff could no longer purchase it. The plaintiff sues the auctioneer.
It was held that the Plaintiff had no right to impose the sale of the horse
upon his nephew with the condition that he must reply to repudiate the
offer. Whilst the nephew intended to sell his horse to his uncle, he had
not communicated it to his uncle, or done anything to bind himself. So, no
5 contract was formed.
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14
Mr Jury has a majority shareholding in Empirnall. Machon Paull
undertakes works for Empirnall. They send Mr Jury a contract, but are
told that he „does not sign contracts.‟ Progress payments were made.
Later, Machon Paull wrote to Mr Jury and said „we are continuing on the
stance that the conditions of the contract are accepted.‟
It was held that the silence of the offeree may indicate they have
assented to the terms where an offeree has been given a reasonable
opportunity to reject the terms, and takes the benefit from those terms
under circumstances which indicate the other party would be payed.
Brambles Holdings v Bathurst City Council  NSWCA 61; (2001) 53
Brambles manages Bathurst‟s waste disposal. After the first contract
expired, and a new one was drawn up, Bathurst wrote to Brambles to
increase liquid waste desposal fees; additional income would be placed
in a fund. Brambles disagrees, but charges the stipulated rates anyway.
Bathurst claims it is entitled to the increased fees.
It was held that, for a variety of reasons (Ipp J: initial rejection of letter
was „part of the posturing of negotiation.‟ And (Heydon JA) Brambles
taking the benefit of the increased fees etc.) that the normal analysis of
offer an acceptance must not be applied in every case: sometimes it is
relevant to ask whether an agreement can be inferred by the conduct of
COMMUNICATION OF ACCEPTANCE
Latec Finance Pty Ltd v Knight  2 NSWR 79
Knight filled out and returned a hire-purchase agreement with Latec,
who processed the agreement, noting they had „accepted‟ without
communicating it to Knight. Knight returns the goods, having not made
any payments, due to a defect. Latec sue.
It was held that acceptance must always be communicated. Acceptance
can be communicated other ways, but „very clear language is needed for
a document of such construction.‟
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH
 2 AC 34
Brinkibon (London) accepts an offer for the purchase of steel bars by
Stahag Stahl (Vienna). Brinkibon accepts from London via telex (fax).
Brinkibon were to sue Stahag for a breach of contract, but it was first
6 ascertained whether the contract was formed in Vienna or London.
It was held that, if it is necessary to determine where a contract was
formed, acceptance occurs at the place where the acceptance is
communicated to the offeror. With instantaneous communications, the
general rule is that acceptance is made when and where the acceptance
Postal acceptance rule
Adams v Lindsell (1818) 1 B & Ald 681; 106 ER 250
A defendant makes an offer to the plaintiff through post. The letter of
acceptance is received two days later than what had been expected, so
the defendant had already sold its wool when the letter was received.
It was held that an offer is accepted where and when the letter has been
Electronic Transactions (Victoria) Act 2000 (Vic) ss 3(1), 13A
S3: a) covers data and images (ie. emails, texts) b) covers sound (ie.
S13: if electronic address is designated by the addressee- the time the
communication becomes capable to being retrieved by the addressee
If no electronic address is designated, the time when the communication
is capable to being retrieved, and, the addressee becomes aware that the
communication has been sent to that address.
Guide to Enactment of the UNCITRAL Model Law on Electronic
CORRESPONDENCE BETWEEN OFFER AND ACCEPTANCE
Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd 
1 WLR 401
Butler and Ex-Cell-O negotiate the sale of machinery. The Seller‟s quote
contains a price variation clause. The Supplier replies „please supply
terms and conditions as below‟ without including a price variation clause.
Seller supplies on the basis of the price variation clause and attempts to
increase the price.
It was held that the traditional approach may be applied in this sort of
case, but applying a „battle of the forms‟ approach yields the same
outcome- in most cases the battle is won by the person who fires the
last shot (provides the last accepted set of terms), but, in some cases,
the battle depends on the shots fired by both sides (where the terms
are reconciled producing a harmonious result), but in this case the
battle was won by whoever gets (or got) in first: from this, it was clear
7 that contract was on the buyer‟s terms.
E Jenks, The History of the Doctrine of Consideration in English Law
(Cambridge University Press, London, 1892), pages 81-82
THE ESSENTIAL ELEMENTS
The benefit/ detriment requirement
The “bargain” requirement
Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424
Commonwealth announces it will pay a subsidy for the purchase of
wool. Australian Woollen Mills (AWM) purchases large quantities of
wool in pursuit of the subsidy. Commonwealth denies AWM its full
subsidy, which AWM sues to recover.
It was held that for consideration there must be a relation of quid pro quo
or „this for that‟. Since the Commonwealth had never promised the
subsidy in return for the purchase of wool, and only announced it as
policy, there was no such relation.
Beaton v McDivitt (1987) 13 NSWLR 162
McDivitt becomes concerned that he will not be able to pay rates on his
land, so he divides it up and allows the Beatons to live there rent free (so
long as they engaged in permaculture) on the understanding that the title
would be transferred after some time. Eventually, the relationship sours
and the Beatons are ordered off the land.
It was held that in this case there was no consideration moving from
Beaton to McDivett because the promises Beaton made cannot be
classified as quid pro quo for a transfer of title. In some cases
consideration will be so illusory or one-sided that quid pro quo will not be
Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (receivers and
managers appointed) (in liq)  VSCA 238; (2009) 25 VR 411
Atco (parent) loans money to its subsidiary, Newtronics. Due to financial
difficulties, Atco agrees not to call for its loans to be payed so long as
Newtronics continues to trade. Later, Atco demands payment of its
loans by Newtronics.
8 It was held that for a quid pro quo to exist in this context Newtronics
must show that Atco made a request for it to continue its trading in return
for the undertaking of continued support and that Newtronics was moved
by this request. The evidence could not support such a conclusion, and
thus there was no „this for that.‟ A request/exchange must be made.
ADEQUACY OF CONSIDERATION
Woolworths Ltd v Kelly (1991) 22 NSWLR 189
Here, Kirby P sets out the reasons for why the law has declined to
consider the adequacy of consideration in ascertaining a bargain:
People put different weight on different things
Judges are not qualified to give opinions on the value of things
A requirement of adequacy would open a ‘vast territory of evidence’
People should be able to make their own deals
There is already legislation and equitable safeguards against
SUFFICIENCY OF CONSIDERATION
Roscorla v Thomas (1842) 3 QB 234; 114 ER 496
Thomas delivers a horse and is payed by Rascorla. Later, Thomas
promises that the horse is „sound and free of vice.‟ The horse becomes
vicious, so Rascorla sues.
It was held that as a general rule, the promisor‟s promise must be
coextensive with the promisee‟s consideration. Past consideration will not
support a future promise.
Promise to pay for past services performed at the request of the promisor
Ipex Software Services Pty Ltd v Hosking  VSCA 239
Hosking helps Ipex in the transfer of his computer company to their
name under the belief that he would receive a shareholding in the
restructured company. After the transfer was finalised, an agreement was
written up entitling Hosking to a share in the re-structured group.
It was held that Hosking‟s consideration was not past, but executed,
thus he was entitled to a company share.
Lampleigh v Brathwait (1616) Hob 105; 80 ER 255
Braithwait had murdered a person. He requested that Lampleigh join
9 him on a journey to receive a pardon from the king. The journey ended up
becoming long and expensive. Upon their return, Braithwait promised to
pay Lampleigh an amount.
It was held that where A makes a request to B that he performs services,
and B performs the services requested of him, and A then promises to
pay B for those services, B‟s performance of those services is good
consideration for A‟s promise.
Existing legal duty
Stilk v Myrick (1809) 2 Camp 317
A boat captain promises his seamen the wages of two deserters if they
continue working the ship back to London. Upon returning, he decides not
to pay the extra wages.
It was held that continuing to work the boat could not be viewed as
consideration since the seamen were under an existing legal duty to carry
the boat back to London.
Foakes v Beer (1884) 9 App Cas 605
Foakes owes Beer a judgment debt. He agrees to pay it in increments.
Beer then sued for the interest on the judgment debt calculated from
when it was initially meant to be payed.
It was held that payment of a lesser sum, in satisfaction of a greater sum
cannot be any satisfaction for the whole, as Beer was under an existing
legal duty to pay the full amount.
Hartley v Ponsonby (1857) 7 El & Bl 872 FRESH CONSIDERATION
A ship captain had agreed to pay a crewmember a greater amount for
sailing in worse, more dangerous conditions.
It was held that since the danger was not stipulated in the original terms
of employment, the extra pay could be considered fresh consideration.
Thus, the extra wages were to be payed.
Williams v Roffey Bros & Nicholls (Contractors) Ltd  1 QB 1
The Roffey Brothers, having contracted with Williams to build
apartments, find himself unable to complete the work. After this concern
is raised, Williams agrees to pay the Roffey Brothers an amount if they
complete as many apartments at possible.
It was held that if A enters into a contract with B to do work for B in return
for payment by B and at some stage before A finishes B has reason to
doubt whether A will be able to finish, then B promises A additional
payment to finish on time, and as a result B obtains in practice a benefit,
or obviates a disbenefit, and B‟s promise is not given as a result of
duress or fraud, then the benefit to B is capable of being consideration for
10 B‟s promise.
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 PRACTICAL
Musumeci rents a fruit store from Winadell. Musumeci‟s profit margins
decrease, so it is granted a lower rent payment.
It was held that Williams v Roffey Brothers should be followed with a
recasting: it being that „before A finishes his obligations under the
contract B has reason to doubt whether A will be able to complete his
obligations, so B promises extra payment or another concession to A and
as a result B obtains a practical benefit, A suffers a detriment, or obviates
a disbenefit and this is worth more than any remedy against the
beneficiary… then the benefit to B or detriment to A is good consideration
for B‟s promise.‟
Re Selectmove Ltd  1 WLR 474
Pao On v Lau Yiu Long  AC 614 PROMISE IS MADE TO A THIRD
Pao On owns Shing On. Pao On agrees to sell Shing On to Fu Chip.
Lau Yiu Long is Fu Chip‟s major share holder. Pao On enters into an
agreement with Fu Chip not to sell 60% of its shares before a specified
time. Pao On then entered into a subsidiary agreement with Lau Yiu
Long to sell 60% his shares to Lau at an agreed price. Pao On realised
this agreement was poorly drafted, and refused to continue with the first
agreement unless it (the subsidiary agreement) was redrafted. A new
subsidiary agreement was formed indemnifying and guaranteeing Lau
from a fall in share price. By the next year share prices had dropped
substantially. Lau, with threat of being sued, argued that no consideration
had passed for the subsidiary agreement; the parties were already bound
to the terms of the main agreement.
It was held that the real consideration given by Pao On in return for the
indemnity was the promise to perform their pre-existing contractual
obligations to Fu Chip. A pre-existing contractual obligation to a third
party can be good consideration because the promisee obtains the
benefit of direct obligation, that is, if Pao On breached the main
agreement with Fu Chip, Lau Yiu Long would be allowed to Pao On for
the breach, whereas ordinarily he‟d only be able to sue Fu Chip
Wigan v Edwards (1973) 1 ALR 497 BONA FIDE COMPROMISE OF A
GENUINE LEGAL DISPUTE
Edwards purchased a house from Wigan. The house was defective, and
Edwards said that he would not finalise the contract unless the defects
were attended to. Under pressure, Wigan compromised to remedy the
major defects within a week of purchase, and to rectify any other defects
11 within 5 years. He did not carry out this promise.
It was held that if one party honestly and legitimately believes they are
excused from a contractual duty, then the performance of that contractual
duty is good consideration for a subsequent promise by the other party.
Here, whilst the Edwards were wrong in the belief that they did not have
to complete the purchase, it is what they honestly believed, and thus
Wigan was bound by his promise.
cf. Ballantyne v Phillott (1961) 105 CLR 379
It was held that there was no genuine foundation for Ms Ballantyne‟s
claim that Phillott had defamed her, and thus neither party was bound to
the terms of their compromise that Phillott would discontinue his claim
against Ballantyne for unreturned loans, and that Ballantyne would
admit she had no right of claim against Phillott in defamation.
INTENTION TO CREATE LEGAL RELATIONS
THE OBJECTIVE APPROACH
Shahid v Australasian College of Dermatologists  FCAFC 72;
(2008) 168 FCR 46
Shahid wants to join the College of Dermatologist. She applied multiple
times, her application providing a right of appeal upon payment of a
substantial fee. Her appeal was quashed three times. She sued, arguing
that the appeal process created a contract whose terms must be
followed, and that the appeal process, by not being genuine and
effective, breached this contract.
It was held that the parties‟ uncommunicated intentions should not be
considered. The parties did intend to enter legal relations having regard
to the comprehensive appeal process, the time and effort involved in the
application and the payment of a substantial sum. “Where one party
makes, and another party accepts, a money payment as consideration for
a promise by the other to provide some service or to bestow some
benefit, the proposition that each intended the promise to be binding and
to carry the normal legal consequences does seem rather obvious.‟
Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (receivers and
managers appointed) (in liq)  VSCA 238; (2009) 25 VR 411
Same facts as above.
Although it is customary to conceive of intention to create legal relations
12 as a contractual requirement separate and distinct from the need for
consideration, the better view may be that the rules as to consideration
supply the answer as to whether parties intend to enter into a legally
binding bargain. Even so, in some cases consideration and the intention
to create legal relations can be distinct; as where, for example, although
application of the rules as to consideration as such suggest the
formation of legally binding agreement, the parties have otherwise
expressly or impliedly signified that they do not intend their arrangement
to be legally binding. In such cases, the existence of background
circumstances, such as that a dealing is between members of the same
family, or between corporations within the same corporate group, when
taken into account in conjunction with the ordinary rules as to
consideration, may yield a different result to the application of the rules
of consideration simpliciter.
Ermogenous v Greek Orthodox Community of SA Inc  HCA 8;
(2002) 209 CLR 95
Ermogenous is employed by the GOCSA as Archbishop. He is payed by
GOCSA, and upon resigning sues for unpaid annual and long service
leave. GOCSA had argued that their was no intention to create legal
relations between the parties due to the relationship‟s spiritual character.
It was held that there is no presumption that contracts between religions
or associated bodies and ministers of religion, by their nature, are not
legally binding. The word „intention‟ describes what would objectively be
conveyed by what was said or done having regard to the circumstances
in which those things happened. It is not a search for the
uncommunicated intentions of the parties.
Banque Brussels Lambert SA v Australian National Industries Ltd (1989)
21 NSWLR 502
ANI is the parent company of Spedley. Spedley and BBLSA enter into a
loan agreement of a substantial sum, only after ANI provides a strongly
worded „letter of comfort‟ asserting that it would not reduce its
shareholding in Spedley, it would give BBLSA 90 days notice if it wished
to do so, and, that it would ensure that Spedley is in a position to meet its
debts. Spedley was unable to repay, so BBLSA sued ANI arguing that
the letter of comfort amounted to a contractual document.
As a starting point there was a prima facie presumption that in
commercial transactions there is an intention to create legal relations.
It was held that, if the statements made in letters of comfort are
appropriately promissory in character, court should enforce them when
13 they are uttered in the course of business and there is no clear indication
that they are not intended to be legally binding.
cf. Kleinwort Benson Ltd v Malaysia Mining Corp Bhd  1 WLR 379
Kleinwort agrees to loan MMC‟s subsidiary a loan facility after MMC
provides two letters of comfort stating „It is our policy to ensure [our
subsidiary] is at all times in a position to meet its liabilities to you under
the loan faculty.‟ The tin market crashed and Kleinwort sued on the letter
It was held that the letters of comfort had no legal effect, amounting to
only a statement of the company‟s intention at the time, creating only a
moral responsibility to repay the loans.
DOMESTIC AND SOCIAL AGREEMENTS
Ashton v Pratt (No 2)  NSWSC 3
Pratt agrees with Ashton to pay a substantial financial award if Ashton
becomes his mistress. Pratt dies and Ashton sues for the unpaid award.
It was held that even though there was an agreement, there was no
intention for it to create legal relations because: The context was social, it
was to establish the relationship as „mistress,‟ the parties did not seek
legal advice and the parties did not record this agreement.
Todd v Nicol  SASR 72
A widowed Ms Nicol invites her sister-in-law Todd to Australia to live with
her. In reliance upon a promise that, upon her death, the Nicol house
would belong to her, Todd sells all her stuff. The relationship sours and
Nicol asks the Todds to leave.
It was held that an intention to create legal relations might be implied into
an agreement where the intention is not express. Since it is significant for
a person to sell everything, quit their job and move overseas for a
promise, the intention could be implied.
Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6
The Administration leases land to Leahy. It becomes the
Administration‟s policy that it should engage in tic eradication. Leahy
and the Administration agree that it should take over the spraying of
Leahy‟s property. Some cows die and Leahy sues.
It was held that the Administration had no intention to create legal
relations with Leahy because it was merely performing a government
function and simply pursuing a policy of tic eradication. The arrangement
was of a more administrative nature than contractual.
14 cf. Placer Developments Ltd v Commonwealth (1969) 121 CLR 353
Commonwealth and Placer enter an agreement whereby placer would
start a timber company importing from New Guinea to Australia, and the
Commonwealth would, in return, pay a subsidy. This agreement
received parliamentary approval. The Commonwealth did not pay the
subsidy in accordance with the appropriate clause.
It was held that both parties intended the contract to create legal
relations as it was approved by the parliament, it was of a commercial
nature, and the language of the agreement pointed to an intention,
Masters v Cameron (1954) 91 CLR 353
Masters and Cameron enter into an agreement for the transfer of
property which said „this agreement is made subject to the preparation of
a formal contract of sale which shall be acceptable to my solicitors on the
above terms and conditions.‟ The Masters refused to go through with the
It was held that an agreement on which the parties have negotiated
terms of a contractual nature that exists alongside an agreement that it
shall be dealt with by a „formal contract‟ may fall into three categories. In
the first of these the parties have finalised all the terms and intend to be
immediately bound to those terms, but at the same time propose to have
the terms restated fully in a formal document. In the second the parties
have completely agreed on all terms and do not intend to vary those
terms but still have made the performance of one or more of those terms
conditional upon the execution of a formal contract. The third, the parties
do not intend to make any legally binding agreement unless and until they
execute a formal agreement. This case was of the third category. The
expression „subject to preparation of a formal contract‟ and particularly as
the signed document would contain any documents the solicitor thought
necessary indicated that the parties had established no more than a
basis for future agreement.
Baulkham Hill Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40
In this case a fourth category was put forward, namely „one in which the
parties were content to be bound immediately and exclusively by the
terms they had agreed on whilst expecting to make a further contract in
substitution for the first containing, by consent, additional terms.
Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460
Per HCA: „[N]o contract is concluded until all the parties negotiating are
agreed upon all the terms of their bargain- unless indeed the terms left
outstanding are such as the law will supply.‟
ANZ v Frost Holdings Pty Ltd  VR 695
ANZ contracts with Frost for the design and supply of 50,000 calendars.
Nothing was agreed on as to their price, size, style and the format of the
calendar. ANZ decides not to complete the deal and Frost sues.
It was held that „it is a first principle of the law of contracts that there can
be no binding and enforceable obligation unless the terms of the bargain,
or at least the essential or critical terms have been agreed upon. So there
is no concluded contract where an essential or critical term is expressly
left to be settled by future agreement.‟ Since nothing had been agreed on
as to the format, size, style of the calendars, even though the Goods Act
1958 (Vic) (if parties have agreed upon all essential terms) allows the
implication of a „reasonable price,‟ no contract was formed.
Foley v Classique Coaches Ltd  2 KB 1
Foley agrees to sell a piece of land to Classique on the condition that
Classique enter into a second agreement with him whereby Foley would
sell petrol to Classique at price decided „from time to time‟ and
Classique would not purchase petrol from anyone else. This contract
survived three years before Classique decided to by petrol from
It was held that a term stipulating a „reasonable price‟ could be implied
into the contract in the circumstances since the parties believed they
were part of a contract for three years, and the contract provided an
arbitration clause which could apply to the price of petrol.
Council of the Upper Hunter County District v Australian Chilling and
Freezing Co Ltd (1968) 118 CLR 429
Council sells electricity to ACF. Cl 5 of the agreement allows the
Council to vary supplier‟s costs (maximum demand charge and
maximum energy charge) in other respects not specified in the
agreement, so long as ACF is given 14 days notice in writing.
It was held that cl 5 was not void for uncertainty. So long as the wording
of the agreement is not so „obscure and so incapable of definite meaning
16 that the court is unable to attribute to the parties any contractual intention‟
the contract cannot be held meaningless. Furthermore, no narrow or
pedantic approach is warranted in attributing this meaning. And, per Kitto
J, the „supplier‟s costs‟ are ascertainable through the application of
„normal business principles.‟
Implying objective standards
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Dr Pace was employed by Biotechnology under a contract that would
give him the option to participate in the company‟s equity sharing
program. Pace was aware that such a scheme did not exist at the time of
agreement. He sued the company after they failed to properly provide this
It was held that the fulfilment of this scheme depended on the decision of
one party: there was no external standard to affix an appropriate or
reasonable equity sharing scheme because „there mere existence of
other equity sharing schemes in other companies with different scientists
provides no such reference point.‟ And thus the scheme was void for
uncertainty because it left too many decisions to be made by the court to
give it content.‟
Whitlock v Brew (1968) 118 CLR 445
Hall v Busst (1960) 104 CLR 206
Hall purchased land and chattels off Busst in an agreement that would
enable Busst to repurchase the land if Hall wished to resell. If Hall
exercised this option he would pay a price „which shall be added to the
value of all additions and improvements to the property… and subtracted
from its deficiencies.‟ Hall sold without giving notice to Busst, who
It was held that the words „the value of all additions and improvements‟
was too uncertain because there was no external standard to which the
value of these things could be ascertained. It is even more difficult to
ascertain a price to „cover the depreciation in the value of all buildings‟ by
reference to an external standard.
Agreements to negotiate
United Group Rail Services Ltd v Rail Corporation of New South Wales
 NSWCA 177; (2009) 74 NSWLR 618
An agreement to “meet and undertake genuine and good faith
negotiations with a view of resolving” was upheld with the view that these
„are not empty obligations.‟
17 ILLUSORY PROMISES
Meehan v Jones (1982) 149 CLR 571
Jones agreed to sell an oil refinery to Meehan at a price. The contract
contained a special condition by which Meehan would obtain „finance on
satisfactory terms and conditions in an amount sufficient to complete the
purchase.‟ Meehan had done everything necessary under the contract
but for the above, and informed Jones, but Jones had agreed to sell the
refinery to another, arguing that the above provision was too uncertain.
It was held that a “subject to finance” or “subject to finance on
satisfactory terms and conditions” clause denotes finance which is
satisfactory to the purchaser is not to say that he has an absolute or
unfettered right to decide what is satisfactory. Since all else had been
done, the contract was enforceable.
Godecke v Kirwan (1973) 129 CLR 629
Godecke (purchaser) and Kirwan sign an agreement where, if required,
the vendor/I/we will prepare a formal agreement containing „the forgoing
and such other covenants and conditions as they may reasonably be
required.‟ Kirwan refused to proceed.
It was held that the terms were not illusory because the new „covenants
and conditions‟ were limited to those consistent with the terms of the
offer. Further, the standard of reasonableness, which could be
determined objectively, prevented the conference of an unfettered
discretion on the solicitors.
Placer Development Ltd v The Commonwealth (1969) 121 CLR 353
Placer and The Commonwealth entered into an agreement whereby
Placer would provide timber products from New Guinea, and the
Commonwealth would pay a subsidy determined by it „from time to time
but at an amount… not exceed[ing] the amount of customs duty paid and
It was held that “wherever words which by themselves constitute a
promise are accompanied by words showing that the promiser is to have
a discretion or option as to whether he will carry out that which her
purports to be the promise, the results will be that there is no contract
upon which an action can be brought at all.‟ Since no objective standard
could be implied, and the Commonwealth had a discretion to determine
the subsidy (there was no quantum or formula to determine it) the term
THE STATUTE OF FRAUDS AND ITS AUSTRALIAN EQUIVALENTS
Instruments Act 1958 (Vic) s 126
(1) An action must not be brought to charge a person upon a special
promise to answer for the debt, default or miscarriage of another
person or upon a contract for the sale or other disposition of interest in
land unless the agreement on which the action is brought, or a
memorandum or note of the agreement is in writing signed by the
person to be charged or by a person lawfully authorised in writing by
that person to sign such an agreement, memorandum, or note.
(2) It is declared that the requirements of subsection (1) may be met in
accordance with the Electronic Transactions (Victoria) Act 2000.
Guarantee vs. indemnity
Yeoman Credit Ltd v Latter  1 WLR 828
It was held that an indemnity is a contract by one party to keep the other
harmless against loss, but a contract of guarantee is a contract to
answer for the debt, default, or miscarriage of another who is
primarily liable to the promise.
ONLY A GUARANTEE REQUIRES A SIGNED NOTE OR
MEMO UNDER THE ACT
THE FORMALITIES REQUIRED
Joinder of documents
Tonitto v Bassal (1992) 28 NSWLR 564
In this case it was held that two documents (an option agreement and a
letter) can be „joined‟ to satisfy the Statute of Frauds so long as the words
used in one document are capable of referring to another, and evidence
can be given to resolve the ambiguity.
Pirie v Saunders (1961) 104 CLR 149
Pirie grants Saunders a lease orally. During negotiations Pirie‟s solicitor
took notes containing a brief outline of some of the terms. The court
considered whether the solicitors notes constituted a „memo or note of
agreement‟ and, if yes, whether the notes were signed by Pirie.
It was held that the solicitor‟s notes could not be construed as a note or
memorandum for the statute as the note did not list all the essential
terms, and in particular, the fact that the notes did not even specify the
19 house to be leased was fatal. Moreover, the fact that Pirie stood by as his
solicitor wrote his name was insufficient to give rise to an „authenticated
Documents in electronic form
Electronic Transactions (Victoria) Act 2000 (Vic) ss 7, 9
Section 7: A transaction is not invalid because it wholly or partially took
Section 9: The signature requirement of an electronic transaction can be
met if a method is used to identify the person and indicate their approval
of the transaction, and that method is reliable in all the circumstances and
proven to do so, and the person who requires the signature gives consent
for its transmission in that way.
THE CONSEQUENCES OF NON-COMPLIANCE
Unenforceability (Unenforceable but not void)
Popiw v Popiw  VR 197
It was held that an unenforceable contract can be used as a defence,
and in some cases, may be subject to restitution.
Part performance: Ogilvie v Ryan  2 NSWLR 504
Ms Ryan moves into a home with Ogilvie. Upon Ogilvie‟s death his
executor commences proceedings to reacquire the home from Ryan,
who alleged that the pair had previously agreed that the house would be
hers, rent-free for as long as she lived, upon Ogilvie‟s death.
It was held that a constructive trust will be declared in equity to defeat a
species of fraud, namely that in which a defendant seeks to make an
unconscionable use of his legal title by asserting it to defeat a beneficial
interest in a property As for part performance, it was held that the
narrower approach in Maddison v Alderson should be applied: “acts
relied upon as part performance must be unequivocally and in their own
nature referable to some such agreement as that alledged.‟ Thus a
claim for part performance could not be pursued. (NOTE: Applying the
broader test, that the acts must only point, on the balance of
probabilities to the existence of an incomplete contract, would give rise
to part performance in these circumstances)
Age of Majority Act 1977 (Vic) s 3(1)
The age of majority in Australia is 18. Persons under the age of 18, or the
age of majority are classified as minors.
20 BINDING CONTRACTS: NECESSARIES
Goods Act 1958 (Vic) s 7
Contracts for necessaries are binding on minors. A minor must only pay a
„reasonable price‟ for those goods. Necessaries refer to goods suitable to
the condition in life of such minor or other person and to his actual
requirements at the time of sale and delivery.
CONTRACTS BINDING UNLESS REPUDIATED
CONTRACTS REQUIRING RATIFICATION
Supreme Court Act 1986 (Vic) s 50
(1) No proceeding can be brought to charge a person
(a) On a promise made after full age to pay a debt contracted during
(b) On a ratification made after full age of a promise or contract
made during minority
(2) This section applies whether or not there was any new consideration for the
promise or ratification
Supreme Court Act 1986 (Vic) ss 49, 51
Contracts made by a minor for
(a) Repayment of money lent or to be lent
(b) Payment of goods supplied or to be supplied, other than necessaries
(c) Accounts stated
If a minor who has contracted a loan (a contract for which is void under
this division) agrees after full age to repay all or part of that loan, that
agreement and any instruments relating to it is, subject to subsections
(2) and (3), void against everyone.
THE DEVELOPMENT AND ELEMENTS OF EQUITABLE ESTOPPEL
Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101
Quaglia asked for a rent reduction from her landlord Je Maintiendrai.
Low demand for retail space put Quaglia in a good bargaining position:
she asked for reduced rent. Je Maintiendrai charged a reduce rent, but
once the tenancy ended they asked for „arrears‟ that were legally due
under the terms of the lease.
It was held that there is no valid reason for distinguishing between
promissory and equitable estoppel. Since the Tennant‟s business was
small it would be detrimental for it to pay these „arrears‟ (accrued over 18
months) in a lump sum.
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Walton Stores negotiated with Mahers to lease a part of his land.
Mahers was told that he must „act fast‟ in the destruction of a building on
the land to secure the lease. Walton Stores rescinded from the deal.
It was held that estoppel may be used offensively like a „sword‟ so long
as the representor is unconscionable in his departure. That equity will
come to the relief of a plaintiff who has acted to his detriment on the basis
of a basic assumption in relation to which the other party to the
transaction has played „such a part in the adoption of the assumption that
it would be unfair or unjust if he were allowed to ignore it,‟ (Estoppel no
longer requires a representation of fact or future conduct). Per Brennan J:
to establish an equitable estoppel the plaintiff must prove:
1.The plaintiff assumed or expected that a particular legal relationship
exists between the plaintiff and the defendant (or will exist in the future,
and that the defendant was not free to withdraw from this representation).
2. The defendant induced the plaintiff to act on this assumption or
3. The plaintiff acts or abstains from acting in reliance on the assumption
4.The defendant knew or intended him to do so
5. The plaintiff‟s action or inaction will occasion detriment if the
assumption or expectation is not fulfilled
6. The defendant has failed to act to avoid that detriment whether by
fulfilling the assumption or expectation or otherwise.
Legione v Hateley (1982) 152 CLR 406
Legione contracts to sell his land to Hateley, subject to a clause
whereby neither party can enforce their contractual rights unless 14 days
notice of default is given. Hateley defaults, and the Legiones give notice.