tabl1710 lecture wk4 -promissory estoppel, intention, terms of contract

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TABL 1710Business and the Law

Lecture 4 Contract Law (Cont’d)

Promissory estoppel, Intention, Terms of a Contract

Lecturers: Paul Tuohy/Leela Cejnar© 2015 The University of New South Wales

Sydney 2052 AustraliaThe original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or

review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

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In-Class Exercise on Lecture Topics 1 and 2

• In tutorials this week• Closed Book• Worth 10%

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Major Assignment

• Available from Friday• On Moodle• Due 5pm, Monday 4 May (Wk 9)

Discussion Forum

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group as they wish (voluntary)• Tutors will provide details about how to use the

Discussion Forum for your tutorial class• NO MARKS attached to this but a very useful

collaboration tool

Discussion Forum

• Students are welcome to attach relevant articles, media releases, images, videos, podcasts, cases etc to their postings, if they wish

• Students are especially encouraged to read and to comment on the work of their peers

• Be respectful and sensible about what you post

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• NOTE: YOUR TUTORS ARE YOUR PRIMARY POINT OF CONTACT

Make the most of your tutor! Work closely with your tutor and communicate with your tutorTutors will let you know details of their face-to-face consultation times : see information in the Tutorial ProgramAll queries should go to your tutor in the first instanceYour tutor will let you know if your query needs to be referred to me or to a member of the administrative team

Tutorial Attendance

• Reminder: you can only attend the tutorial you are enrolled in!

• Tutors will refuse your attendance in a class where you are not on the roll, unless prior arrangements have been made (eg: due to illness, unavoidable absence because of a job interview etc)

• Remember there is an 80% attendance requirement…don’t miss your tutorials!

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Lecture 3: Summary

Essential elements of a contract:• Intention to enter into a legally binding contract (to

be covered today)• “Agreement”

Offer Acceptance

• Consideration (or price)

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Lecture 3: Summary

Other elements for a valid contract:• Legal capacity• Genuine consent• Legality of purpose• Any formal/procedural requirements must be satisfied(See Latimer at ¶5-510 to 5-570)

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Lecture 3: Summary

Essential elements of contract1.The Offer

• Must be Firm promiseCommunication: Notice of Offer (Carlill v Carbolic Smoke Ball)Revocation of offer to occur before acceptance

• Invitation to treat (Pharmaceutical Society of Great Britain v Boots): offer to make an offer

• Counter-Offers (Hyde v Wrench)• Requests for Information (Harvey v Facey)

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Lecture 3: Summary

2. The Acceptance• Must be in response to Offer (R v Clarke)• Communicated (note: silence is not acceptance: Felthouse v

Bindley)• Express or implied (eg by conduct: Brogden v Metrop R’way

Corp; Empirnall Holdings)• Absolute, unqualified• Any conditions must be fulfilled• Clear and certain• Postal Rule/Instantaneous communications

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Lecture 3: SummaryConsideration: what is it?

• See Latimer ¶5-400 - ¶5-485• “Something for something”

• Concept of VALUE

• BUT can be broader than just ‘price’

Can include acts, promises etc

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Lecture 3: SummaryConsideration: what is it?

• It is what the promisor gives in exchange for the return promise or the return action from the promisee

• Consideration turns an agreement into a contract

• Failure of consideration can make an agreement unenforceable

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Lecture 3: SummaryRules for Consideration

1. Consideration is essential to the validity of every simple contract

• Must move between the parties to the contract (Promisor to Promisee):

Dunlop Pneumatic Tyres v Selfridge & Co• A B• B C (ASK: Why can’t A sue C?)

Coulls v Bagott• A B+C

• See Latimer ¶5-405

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2. Consideration must not be past• Past consideration:

occurs where a promise is given after an act has been performed

is generally not enforceable

• Case: Roscorla v Thomas, Latimer ¶5-410

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• BUT: past consideration can be good consideration IF:

the act was done at the promisor’s requestthe parties understood that the act would be remunerated the promise would have been enforceable if it had been promised in advance of the act

Cases:• Lampleigh v Braithwait• Re Casey’s PatentsSee Latimer at ¶5-410

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Therefore:

Consideration must bePresent (executed) consideration which is an act done ‘now’in return for a promise when the act is completed: see Latimer at ¶5-430

Or

Future (executory) consideration where the parties agree to exchange promises to do something in the future: see Latimer at ¶5-420

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3. Consideration must have value but need not be adequate

Consideration must have value but need not be adequate as this is something only the parties to the contract can decide

Case: Chappell & Co Ltd v Nestle Co Ltd

See Latimer at ¶5-440

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4. Consideration must be sufficient

• This means that it must have some legal value

• If not, it may be considered insufficient and no consideration at all

• As long as consideration exists, the courts will not be concerned about its adequacy

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5. Consideration must be possible of performance

6. Consideration must be definite

7. Consideration must be legal

8. Consideration must be referable to the other party’s promise

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9. Practical benefit can be good consideration

….BUT…see next slide!

• Cases: Musumeci v Winadell Pty LtdWilliams v Roffey Bros & Nicholls (Contractors) Ltd


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Today’s lecture• Consideration: Insufficient Consideration• Exception to Consideration; Doctrine of Promissory Estoppel• Intention to enter into legal relations• Terms of a contract

Representation vs termsParol evidence ruleExpress vs implied termsCollateral contractsConditions and warrantiesUncertain termsMeaningless termsAmbiguous terms

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Overview - Lecture 4Terms of a Contract

On completion of this lecture you should be able to:Explain what is meant by promissory estoppelClarify the roles of intention in contract lawSet out the legal requirements for a valid contractClarify the role of intention in contract lawExplain the difference between terms and representationsExplain what is a collateral contractIdentify different types of terms (condition, warranty etc)

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Insufficient Consideration

1. Promise to perform a duty already imposed by contract is not good consideration

(Exception: Practical Benefit – see previous slide)

• Cases: Stilk v MyrickHartley v Ponsonby


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Insufficient Consideration

2. Part payment is insufficient consideration• Part payment is NOT good consideration• Exception: if creditor agrees to accept smaller amount (or

something different), a debt is considered discharged.• Cases: Pinnel’s case; Foakes v Beer


3. Moral obligations as well as natural love and affection will NOT convert a promise into good consideration

• Case: Eastwood v Kenyon• See Latimer at ¶5-471


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Consideration and Promissory Estoppel: the exception to the rule

• Promissory estoppel will allow a promise to be enforced even though the promisee has not provided good consideration for that promise

• It operates where it would be inequitable, or unconscionable, for the promisor not to be held to their promise

• You can’t go back on your word!• See Latimer at ¶5-485

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Promissory estoppel

• Cases:Central London Property Trust Ltd v High Trees House LtdLegione v HateleyWaltons Stores (Interstate) Ltd v MaherSee Latimer at ¶5-485

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Promissory estoppelBrennan J’s (Waltons v Maher) six-point test for when the promisorcannot go back on his/her word:

• Promisee (Maher = P) assumes existence of particular legal relationship

• Promisor (Waltons = D) responsible for this assumption• Promisee acted/did not act in reliance on that assumption• Promisor knew what promisee would do or intended for

promisee to act in this way• Promisee will suffer loss or some detriment or harm if the

assumption/expectation is not fulfilled• Promisor did not take any steps to warn promisee s/he may not

fulfil expectation etc


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Promissory estoppel

“The central principle of the doctrine is that the law will not permit an unconscionable – or, more accurately, unconscientious – departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of somerelationship, course of conduct, act or omission which would operate to the other party’s detriment if the assumption be not adhered to…”.

Deane J in Commonwealth of Australia v Verwayen [1990] HCA 39See Latimer at ¶5-485

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Intention to create legal relations

There must be evidence that the parties INTENDED to

make a legally enforceable contract

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‘Subject to contract’

Expressly NO intention

• ‘Subject to contract’ clausesDocument not in its final formSubject to preparation of written document

Case:Masters v Cameron: see Latimer at ¶5-250

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Presumed intention

• The courts have to determine objectively whether the parties intended the agreement to be legally enforceable

• To assist, traditionally agreements are divided into consider two categories:

Social, family, domestic, voluntary

Commercial or business

Presumptions about intention are applied to each…see next slide

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Presumed intention

Traditionally:

• Social, family, domestic, voluntary (ie between friends, family members or where services volunteered)

PRESUMED NO INTENTION

• Commercial or business

PRESUMED INTENTION TO BE BOUND

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Presumed intention

Traditionally:

• Relevant presumption applied

• Presumption could be rebutted by evidence evidence

Party without benefit of presumption (eg defendant in commercial agreement) bears onus of rebutting it

Intention

• Presumptions now abolished• Traditional approach no longer apply• Better approach: situation will DEPEND ON THE

FACTS OF A CASE

Cases:Ermogenous v Greek Orthodox Community of SA Inc: ‘wrong’ to formulate ‘prescriptive rules’ concerning intention Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

See: Latimer at ¶5-090

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Intention: Relationship of the Parties

• Social: - relationships made between friends or acquaintances

• Domestic: relationships between family members and relatives

• Voluntary: parties volunteer their services

Intention: Domestic Agreements

Domestic agreements

Cases:Balfour v Balfour

Cohen v Cohen

Wakeling v Ripley

Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs


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Intention: Voluntary Agreements

Voluntary agreements

Cases:Teen Ranch Pty Ltd v Bro

Ermogenous v Greek Orthodox Community of SA Inc


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Intention: Commercial/Business

Case:Rose & Frank Company v JR Crompton &Bros Ltd


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The contract

• What have the parties agreed to?• What is the extent of the rights and

obligations that the parties have entered into?• The answer is found in the contents of the

contract

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Contents of a contractContents of a contract can be classified intotwo categories:(1) a representation:

• non-contractual statement • made pre-contract during negotiations • not intended to be legally binding• if false, it is a misrepresentation

(2) a term:• contractual statement• intended to be legally binding• breach of term gives rise to action for breach of

contract

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Representations• Importance of truth of the representation• Reliance of innocent party on representation• Time period between representation and final

agreement• Intention behind making of representation• Omission of representation from contract• Consider any special knowledge or skills of person

who made representation


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Representation

Cases: Oscar Chess Ltd v Williams Bentley (Dick) Productions Ltd v Harold Smith (Motors) Ltd

(Compare these two decisions)


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Representations and the parol evidence rule

• Parol = oral, spoken• If a contract is in writing and if the writing

appears to contain the whole contract, it is presumed that the writing contains all of the terms of the contract


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Representations and the parol evidence rule

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


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Terms of the contractTerms include both:

• express terms• implied terms

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Terms of the contract(1) Express – can be:• oral• written • oral and written

(2) Implied – can be:• to give the contract business efficacy (ie: to help make sense of

the contract)• from custom or business usage• from previous dealings• by the intention of the parties• by the courts (ie: to define uncertain/meaningless/ambiguous

terms)

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Implied Terms

Case: The Moorcock


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Implied Terms

For terms to be implied into a contract, they must:• be reasonable and equitable• be necessary to give business efficacy• be so obvious ‘it goes without saying’• be capable of clear expression• not contradict an express term of the contract

See Latimer at ¶6-110 at footnote 16: BP Refinery Case

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Statutory Implied Terms• Some statutes imply (add) terms to contracts where consumers

are involvedFor example, concerning fitness for purpose, merchantable (acceptable) quality, compliance with description/sample etc

• See:Australian Consumer Law, which is Schedule 2 of the Competition and Consumer Act, 2010 (Cth)


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Types of terms

1. Condition• an essential term going to the root of the contract • allows injured party option of rescinding (ie ending) the

contract and/or suing for damage

2. Warranty• a non-essential term of lesser importance • allows the injured party only to recover damages (and

requires continued performance of the contract)

See Latimer at ¶6-050 to ¶6-090

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Condition or Warranty

Cases:Bettini v GyePoussard v Spiers(Compare these two decisions)

Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market


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Uncertain terms

• If there have been prior dealings, courts may imply appropriate terms

• Where there are no past dealings, courts may be forced to find contract void for uncertainty


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Meaningless terms

• If the term has no meaning, the courts will sever it if possible and leave the rest of the contract valid

• If this is not possible, the contract will be void for uncertainty


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Ambiguous terms

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


Exclusion Clauses

• Limitation of liability clauses• To be discussed next week

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The FIVE STEP PLAN to answering a legal problem

1. Identify relevant factsWhat are the key facts that are relevant to the problem?

2. Identify key, relevant statutory provisions and case law principlesAsk: (a) does a statutory provision apply to this situation and does it provide a specific answer to the problem? (b) are there any cases which have dealt with a similar fact situation to the one you are considering and/or which have interpreted any relevant statutory provisions?

NOTE: you should provide the name/section of any relevant legislation and the names of any relevant cases in your answer

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3. Note similarities to (follow) or differences from (distinguish) prior cases

• Jot down the names of cases that you have studied, where the facts were similar, if not identical to the ones in the problem you are considering

• Note any factual differences from previous cases and state whether or not you consider that the differences matter to your problem

• Often the facts of a problem may be similar to but a little different to those in a decided case: think about whether any factual differences matter

• Whether or not any differences matter will depend on the scope of the legal principle that the relevant case stands for

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4. Apply the relevant statutory provisions and case law principles to the facts

• Key aspect of answering legal problem question• After identifying the relevant facts, and referring to the relevant

statutory provisions and case law, you then have to apply the relevant statutory and/or case law principles to the facts of your problem

• This step involves saying what the legal principles you have identified mean to the facts of your problem and what the effect of these legal principles will be on the rights and obligations of the parties in your problem

• Key part of the process of reasoning that leads to a conclusion both in a legal problem question and in an actual court case

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5. Reach a conclusion based on the application of the statutory provisions and case law principles to the facts

• You need to reach a conclusion• The fact that a subsequent court can overrule the decision of a

previous court demonstrates that there is no absolutely correct answer to legal problem questions

• More important than the conclusion you reach is the process of reasoning that led you to that conclusion

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How to answer a legal problem

• Remember:

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

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Next lecture

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

conduct etc)

• Read: Latimer Ch 5 ¶5-610-¶5-810; Ch 6 ¶ 6-180-¶6-275; Ch 11

tabl1710 lecture wk4 -promissory estoppel, intention, terms of contract

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