Assignment 4 Due April 7Note· You should do additional .docx

Assignment 4 Due April 7
Note:
· You should do additional exercises from the textbook to
improve your understanding of the material.
· Show your work to get credit. See the course outline for a
description of how assignments should be done.
1. p. 440 # 9
2. p. 443 #15 (b)(c)
3. p. 443 #17
4. Suppose that the following estimates of activity times (in
weeks)
were provided for the network in Problem 6 (p. 439).
Activity
Optimistic
Most Probable
Pessimistic
A
4
5
6
B
1
3
5
C
4
7
10
D

5
6
7
E
5
7
9
F
2
3
4
G
6
10
14
H
5
8
11
What is the probability that the project will
a. be completed within 24 weeks?
b. last longer than 26 weeks?
c. last longer than 23 weeks?
d. last longer than 22 weeks but shorter than 25 weeks?
PAGE

business law c19-c28END2008_08_10_15_10_13
Poole: Contract Law

ANSWERS - SELF-TEST – PRIVITY OF CONTRACT AND
THIRD PARTY RIGHTS
1. What is the doctrine of privity of contract? (2)
The doctrine of privity of contract determines who may enforce
the contract and
provides that only the parties to a contract may enjoy the
benefits of that contract (1)
or suffer burdens under it (1).
2. What were the two difficulties in establishing an argument
that the contracting
party in fact contracted as agent for the third party? (2)
The 2 difficulties in establishing the agency argument were
(a) establishing that the third party (principal) gave authority to
the agent to act in
that capacity. (1)
(b) establishing that the principal provided consideration to
support the promisor's
promise. (1) Example is Dunlop Pneumatic Tyre v Selfridge.
3. In what circumstances under the Contracts (Rights of Third
Parties) Act 1999 can
a third party rely on an exemption clause in a contract to which
he is not a party? (3)
How does this differ from the previous position at common law?
(4)
A third party (i.e. a person who is not a party to a contract
containing an exemption
clause) may enforce that clause under s.1(6) of the Contracts
(Rights of Third
Parties) Act 1999 if either (a) the contract expressly states that
the third party shall

have this right of enforcement (1) or (b) the exemption clause
purports to protect the
third party and (on a proper construction of the contract) there
is nothing to indicate
that the contracting parties did not intend the term to be
enforceable by that third
party (s.1(1)(2)). See Nisshin Shipping v Cleaves (2003) for
explanation of s.1(1)(b)
and s.1(2). (1)
In addition, the third party must be expressly identified in the
contract either by
name, or as a member of a particular class or description e.g.
“independent
contractors” but need not be in existence at the time the contract
was entered into
(s.1(3)).(1)
This test inevitably limits the scope of the legislation and the
position of third parties.
However, with time it was envisaged that contracts would be
drafted so as to give
third parties protection via an express right to enforce
(s.1(1)(a)), where this was the
parties’ intention. This doesn’t appear to have happened and, if
anything, parties are
contracting to avoid the Act’s application.
OXFORD H i g h e r E d u c a t i o n
© Jill Poole, 2006. All rights reserved.
Poole: Contract Law

At common law the third party could potentially have used Lord
Reid’s criteria in
Scruttons v Midland Silicones, as applied by the PC in New
Zealand Shipping v
Satterthwaite in order to rely on an exemption clause. Thus it
would have to be
established that:
(a) The main contract made it clear that the third party was
intended to be protected
by the clause.
(b) The main contract made it clear that the contracting party
was acting as agent for
the third party for the purpose of obtaining the benefit of the
clause.
(c) The contracting party must have had authority from the third
party to act as his
agent.
(d) The third party must have provided consideration for the
main contract promise of
exemption. (2)
The agency link has now disappeared under the new legislation
but factor (a) above
is still relevant. (1) Problems had existed at common law with
the application of (c)
above in cases where the third party was not in existence at the
time the main
contract was entered into. This limitation has now been
expressly removed by s.1(3)
of the 1999 Act. (1)
4 What is the significance, if any, of Jackson v Horizon
Holidays? (2)
Jackson (as refined by Lord Wilberforce in Woodar v Wimpey)

is authority for the fact
that a contracting party who, for reasons of convenience,
contracted for the benefit of
others may be able to recover damages to compensate him for
not only his own loss
but also the loss suffered for the others for whose benefit he
contracted (1). This
type of contract is said to be a "contract calling for special
treatment". (1)
5. How does the HL in the St Martin’s Property appeal reach its
conclusion that
substantial damages are available to a person who has not
suffered loss? (3)
The original owner of the land is the party to the building
contract and although he
successfully transferred ownership of the land to the new
owner, he did not succeed
in transferring the benefit of the building contract. Since privity
requires that a person
be a party to a contract in order to recover damages for breach,
AND it is only
possible to recover damages for loss actually suffered by that
party, the original
owner was technically only entitled to recover nominal damages
for breach. The new
owner, who had suffered the loss, was not a party to the
contract. (1)

Poole: Contract Law
The St Martins Property principle allows the original owner to
recover substantial
damages (for the benefit of the new owner) on the basis that it
was contemplated all
along that the property (on which the building work was taking
place) might be
transferred to another person (who would not be a party to the
building contract) but
who would suffer the loss in the event of defective performance.
(2) [“Narrow ground”
principle]
6. Explain Lord Griffiths’s “broad ground” for decision in the
St Martin’s Property
Appeal? (4)
Lord Griffiths was stating that where the contract broken is a
contract for the supply
of work and materials (1), the promisee does not need to show
that he retains a
property interest in the subject matter of the contract at the date
of the breach in
order to be able to recover damages for the breach (2). The loss
suffered by the
promisee is the fact that he does not receive the performance for
which he
contracted (1) – and it does not matter whether he owns the
goods in question.
7. Explain the collateral contract and the way in which it has
been used to avoid

privity problems. (3) Is it likely to be relevant following the
1999 Contracts (Rights of
third Parties) Act? (2)
The collateral contract essentially amounts to the creation of a
contract between
persons who are not parties to the main contract in order to
impose liability e.g. for
statements/promises made. (1) The consideration for this
contract is the making of
the main contract. (1) Examples include Shanklin Pier v Detel
and the collateral
contract between e.g. car dealers and customers covering
statements made by the
dealer which induce the hire purchase contract between the
customer and the
finance company. The making of the hire purchase contract is
the consideration for
the collateral contract. [(1) for an example].
Following the 1999 Act the significance of the collateral
contract device will be
reduced only if the third party is covered by the Act and can
enforce the provision
directly, i.e. expressly identified in the contract by name, a
class member or by a
particular description and only if the test of enforceability is
satisfied (s.1(1)-(3)) – i.e.
it must be clear that the parties’ intended this third party to be
able to enforce a
particular provision or purported to give him some benefit (2).
That may be unlikely in
the typical scenario in which the collateral contract is useful,
e.g. statements by car
dealers when the contract is between the customer and the
finance company.

Poole: Contract Law
8. Can the promisee still pursue an action for breach of contract
where a third party
has enforceable rights under the 1999 Act? (2) How does the
Act deal with the
priorities question? (3)
Yes, the promisee can still pursue an action for breach despite
the fact that a third
party may have enforceable rights under the 1999 Act (1) since
s.4 states that
section 1 does not affect any right of the promisee to enforce
any term of the
contract. (1)
On the priorities question, the Act prohibits double recovery by
promisee and third
party in respect of the same loss (1). Section 5 states that where
the promisee has
already recovered a sum in respect of the third party’s loss, the
recovery allowed to a
third party must be reduced to take account of this sum(1).
However, there is no
express provision requiring the promisee to hold this sum on
trust for the third party
(1). This may be because this would arise at common law.

Points scored [maximum of 30] =
Poole: Contract Law
ANSWERS - SELF TEST – ENFORCEABILITY OF
PROMISES– INTENTION TO
CREATE LEGAL RELATIONS, CONSIDERATION,
PROMISSORY ESTOPPEL
AND DURESS
1. What is the effect of including an "honour clause" in a
written agreement? (2)
An "honour clause" has the effect of rebutting the normal
presumption of an intention
to create legal relations in a commercial agreement (1). Its
effect is to render the
agreement binding in honour only so that it will not be a legally
binding contract. (1)
2. What is the consideration to support a unilateral promise? (1)
The consideration to support a unilateral promise is
performance of the act
requested (Carlill v Carbolic Smoke Ball). (1)

3. Why were the chocolate wrappers held to be part of the
consideration in Chappell
v Nestle? (1)
The chocolate wrappers were held to be part of the
consideration because they were
requested by Nestle i.e. submitting the chocolate wrappers was
part of the act they
requested in exchange for their promise. (1)
4. Pao On v Lau Yiu Long is authority for two propositions
relating to what can
constitute consideration. Explain these propositions (4).
(a) Pao On is authority for the previous request device i.e. the
past consideration rule
can be avoided if it is possible to find a previous request which
carried with it an
understanding or implied promise to pay (or give some
protection)(1). Any act or
promise which follows thereafter will not be past consideration
in relation to that
implied promise or understanding. The later express promise
will merely fix the
amount of the payment or the exact form of protection (1).
(b) Pao On is also authority for the fact that performance or
promising to perform an
existing contractual duty owed to a third party can be a good
consideration to
support a promise (1).
Therefore the Ps' promise to perform the contractual duty owed
to the Fu Chip
Company (to retain some of the shares for one year) could be a
good consideration
to support the Ds' (majority shareholders') promise to indemnify
them against losses

in that period. (1)
Poole: Contract Law
5. What was the difference between the approach of the
majority of the Court of
Appeal in Ward v Byham and the approach of Denning LJ in
that case? (2)
The majority of the CA in Ward v Byham sought to establish
that the promisee had
provided consideration by going beyond her legal duty (1),
whereas Denning LJ
considered that the mere performance of an existing legal duty
should be a good
consideration if it was, as here, of factual benefit to the
promisor. (1)
6. Are the following true or false statements? [6]. [1 point for
each statement
correctly identified as true or false]
(a) The result of Williams v Roffey is that it is no longer
necessary to provide
consideration to support an alteration promise if duress is
absent.

False
(b) Williams v Roffey is authority for the fact that an alteration
promise is
enforceable if there is a factual benefit arising to the promisee.
False (not factual benefit to promisee and not all alteration
promises)
(c) Williams v Roffey is authority for the fact that an alteration
promise to pay
more money is enforceable if there is a factual benefit arising to
the
promisor from making that promise.
True
(d) Williams v Roffey has no application to promises on the
formation of
contracts.
True
(e) Promissory estoppel has no application to promises on
formation of
contracts.
True
(f) Promissory estoppel only applies where there is no
consideration to
support an alteration promise.
True (although it will tend only to be utilised in respect of
alteration
promises to accept less which are not supported by
consideration.
This is because alteration promises to pay more are likely to be
supported
by consideration if factual benefit is easily demonstrated, e.g.

Coote’s
argument. In some cases this may turn on whether factual
benefit is
identified subjectively or objectively).
Poole: Contract Law
7. Can an alteration promise be enforced in the absence of
consideration? (2)
Yes, if it is either (a) in a deed (1) or (b) the promisor is
prevented from going back
on his promise because of the operation of the doctrine of
promissory estoppel (1).
[Note: compare the position in New Zealand which suggests that
an alteration
promise may be enforceable based solely on the promisee’s
reliance on that promise
- Antons Trawling Co Ltd v Smith, CA of New Zealand, 2003].
8. What are the requirements to found the defence of promissory
estoppel? (3)
(i) Promise to forgo (alter) rights under an existing contract (1)
i.e. alterations only.
(ii) Intended to be acted upon and in fact acted upon (no
requirement of detrimental
reliance) (1)

(iii) Inequitable for the promisor to go back on his promise (1).
[The promise or representation must also be clear and
unequivocal]
9. What is the strongest case authority for the fact that
promissory estoppel only has
suspensory effect? (1)
Tool Metal Manufacturing v Tungsten Electric – authority of
the House of Lords. (1)
This is the strongest authority here and therefore there are no
points for any other
authority cited.
10. What is the approach of the Australian courts to the
enforcement of promises, as
illustrated by Waltons Stores (Interstate) v Maher? (2)
The Australian courts adopt a flexible approach using estoppel
in its widest sense in
order to prevent “unconscionable” conduct by the promisor. (1)
This means that they
are not circumscribed by technicalities such as the need to only
use the doctrine
defensively (not as a cause of action) and only to use it in
relation to alterations (not
formation). (1) It is unclear what is meant by “unconscionable”
conduct – see, e.g.
the decision in Tanwar Enterprise Pty Ltd v Cauchi, noted
Casebook (7th) at 167.
11. For what propositions of law is Combe v Combe the
authority? (2)
Combe v Combe is authority for the fact that in English law
(a) promissory estoppel cannot be used in relation to formation

of a contract in order
to enforce a promise despite the absence of consideration; (1)
and
Poole: Contract Law
(b) it can only be used as a defence to an action to recover the
balance (go back on
a promise to accept less in full satisfaction) and cannot be used
as a cause of action
i.e. to enforce compliance with the promise. (1)
12. How does the enforceability of alteration promises to pay
more differ from the
enforceability of alteration promises to accept less in English
law? (4)
As a general rule, alteration promises to pay more and promises
to pay less must
both be supported by consideration if they are to be enforceable.
However, W v R applies to promises to pay more, thus making
it easier to find this
consideration since it can arise if there is a factual benefit to
the promisor in making
the promise to pay more (1). Coote argues that this means that
there will always be
a factual benefit in these circumstances and the promise will
always be enforceable

by consideration. If the promise is supported by consideration
there is no need to
rely on promissory estoppel and its requirements seem better
suited to promises to
accept less. (1)
W v R does not apply to alteration promises to accept less
(Selectmove) so that the
consideration must be fresh consideration moving from the
promisee. (1) However, if
there is no consideration, then the promisor may nevertheless be
prevented from
going back on his promise using the defence of promissory
estoppel (1) (N.B.
promissory estoppel only has suspensory effect whereas
consideration makes the
promise binding for all time. In addition whereas promissory
estoppel cannot found a
cause of action, the presence of consideration will do so).
13. What is the effect of duress on a contract? (1)
Duress renders the contract voidable i.e. liable to be set aside
by the party affected.
(Remedy of rescission applies subject to the bars). (1)
14. What must be shown to establish a claim based on economic
duress? (6)
(a) Pressure or threat affecting business or financial interests
(1) N.B. Need to show
the causal link between the pressure and the contract, Huyton v
Peter Cremer.
(b) That threat/pressure must amount to a coercion of the will
(1) i.e. no realistic
choice but to agree because very serious consequences if do not

do so. (1)
(c) Pressure or threat must be illegitimate. (2)
(d) Victim must protest at the time or shortly thereafter. (1)
Poole: Contract Law
15. What is the significance of the decision in CTN Cash &
Carry Ltd v Gallaher Ltd?
(3)
It addressed the question of whether so-called lawful act duress
can amount to
illegitimate pressure. (1)
Clearly, it may be illegitimate if there is a threat to take lawful
action but the
advantage, which it is sought to obtain, is illegitimate (per Lord
Scarman in The
Universe Sentinel). In the absence of some sort of illegitimate
purpose in making the
lawful threat, it is now clear that in the context of arm’s length
dealings between two
commercial enterprises, it is unlikely that a threat of lawful
action will amount to
duress (1) (particularly where the party making the threat
believes his demand is
perfectly lawful). (CTN Cash & Carry). This would introduce
too much uncertainty

into commercial transactions. (1)
Of course, this leaves open the question of whether a threat of
lawful action against
a consumer by a large commercial concern could be illegitimate
pressure in some
circumstances (e.g. an unconscionable threat of lawful action).
Points scored [maximum of 40] =
Networked
Knowledge
Networked Knowledge - Contract Law
Casenotes
Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256; [1891-
1894] All E.R. Rep.
127, Court of Appeal
[This version of the judgment has been edited by Dr Robert N
Moles
Underlining where it occurs is for editorial emphasis]

Contract Law Homepage
A state of Injustice - table of contents
Losing Their Grip - The Case of Henry Keogh - table of
contents
The defendants were the manufacturers of an influenza remedy,
the carbolic
smokeball. In a newspaper advertisement the defendants offered
£100 "reward" to
any person contracting influenza having used the remedy in
accordance with the
company's directions. The advertisement also stated that the
defendants had
deposited £1000 with the bank to show the sincerity of their
offer. The plaintiff on
the faith of this offer bought and used the remedy in accordance
with the
directions, but shortly after, contracted influenza.
In demonstrating the versatility of a good counsel, D argued
that:
1. The transaction was a bet under the Gaming Act - not
enforceable.
2. The transaction was an illegal policy of insurance.
3. The advertisement was a mere "puff" - never intended to

create legal relations.
4. There was no offer to a particular person and that one cannot
contract with
everyone.
5. If there was an offer, P failed to notify the acceptance.
6. The terms of the offer were too vague in failing to specify
when the influenza
should be contracted.
7. There was no consideration flowing from the plaintiff.
HELD - Lindley LJ
His Honour rejected the first two arguments as not worthy of
serious attention. He
held in respect of the following points that:
The claim that the advertisement was "mere puff" was
inconsistent with the
statement that £1000 had been deposited in the bank as proof of
the defendant's
sincerity.
While the offer was made to the world at large, the offer was
accepted only by
those performing the stated conditions.

The nature of the offer is such that notice of acceptance need
not be given, only
notice of performance. Generally acceptance should be notified,
but in this case
the defendant waived this requirement.
The terms were sufficiently certain. The advertisement should
be read as requiring
that influenza be contracted within a "reasonable time".
The argument that the plaintiff provided no consideration was
rejected. Firstly,
there was the benefit to the defendant of the plaintiff's
purchase, though not
directly from the defendant. Secondly, the inconvenience to the
plaintiff of
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undergoing the remedy.
Bowen L.J
His Honour indicated that the court should "read the
advertisement in its plain
meaning, as the public would understand it". His Honour was in
broad agreement
with Lindley LJ. In particular, in relation to point 5, His Honour
commented that,
as an ordinary rule of law, an acceptance should be notified to
the person who
makes the offer "in order that the two minds may come

together". But because of
the nature of the offer, this case forms an exception to this rule.
Smith LJ was in broad agreement
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Networked Knowledge - Law Lectures
Termination of an offer
Author: Dr Robert N Moles

contents
The Termination of Offers
In order for there to be a valid acceptance there must be an offer
to which that
acceptance is a response. This principle requires not only that
an offer has been
made but that it is in existence at the time of the acceptance. An
offer may come
to an end in a number of ways.
Revocation
Rejection (explicitly or by counter-offer)
Termination (lapse of time)
Death
Condition bringing an offer to an end.
By Revocation
The basic requirement is that a revocation requires
communication to the offeree
of the fact that the offer is no longer open. Under the postal
rule, although an
acceptance is effective upon posting - a revocation is only
effective UPON

RECEIPT
Byrne v Van Tienhoven - revocation requires communication
(1880) LR 5 CPD 344 Common Pleas Div
The court took the view that a revocation is not effective prior
to its
communication, and that the posting of a letter of revocation
does not constitute
communication of it.
The rationale is that a state of mind not notified cannot be
regarded in dealings.
The principle is that the writer of an offer impliedly accepts
that a posted answer
will be sufficient - and that the post office will act as agent for
the purpose -
therefore delivery to the post office is delivery to the other
party.
But this principle is not applicable to the withdrawal of an
offer. Any other view
would lead to great inconvenience. Nobody could act on an
acceptance until a
further stage had been gone through of confirming that a
revocation had not been
sent to them in the meantime.
A counter offer kills the original offer

If you respond to an offer by putting forward an alternative
proposal, it will likely
be regarded as a counter offer, the effect of which will be to
terminate the original
offer.
If A offers to sell something for $100 and B says I'll give you
$95, if A says NO, B
then cannot say OK I'll give you $100 and insist upon the
completion of the
contract. See Hyde v Wrench
But remember the Butler Machine Tool approach - we could try
to get away from
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the traditional to-ing and fro-ing of the offer counter-offer
analysis and say look at
the transaction as a whole - what then?
Remember also the United Nations Convention on Contracts for
the International
Sale of Goods which indicates that an acceptance with only
minor modifications
will not be construed as a counter-offer. It came into force 1
April 1989 and has
altered Australian law - see ACT Sale of Goods (Vienna
Convention) Act 1987.
We will also look to see whether we can distinguish between a
counter offer and a
request for more information Stevenson Jacques - and the effect
of death upon an

offer - Laybutt.
Communication of the revocation does not have to be by or on
behalf of the
offeror.
Dickinson v Dodds -communication by 3rd party
(1876) 2 Ch defendant463 Court of Appeal UK
Here we had an agreement to sell which was "to be left over to
12 June 9am" - in
effect it was only an offer. Before he accepted the offer, the
offeree was told by a
third party that the offeror was selling the property to someone
else. The plaintiff
then did all he could to accept the offer. The offeror then told
him that it was too
late, and the property had already been sold.
Well, there was no consideration to keep the property unsold
until 12 June, despite
the fact that one or maybe both of them thought that they were
so bound i.e. that
the promise imposed some obligation, at least upon D. There is
no authority which
requires an express retraction - if the plaintiff knew that the
defendant no longer
wished to sell to him, even if he had only heard it "on the
grapevine" then the

revocation was effective. Prior to the purported acceptance of
the offer, plaintiff
knew that defendant had revoked.
This case does not affect the requirement that a revocation of an
offer must be
communicated - but a revocation does not require specific
language or form -
there is no requirement that the revocation must be
communicated personally by
the offeror.
Could it have been said that a revocation must be in similar
mode to that of the
offer - or better - telephone and telephone, writing and writing.
Could there be a
feeling of injustice that the offer seemed to have some formality
about it, but that
the revocation had none? Or was plaintiff just trying to take
advantage of
"technicalities"?
Stevenson Jaques & Co v McLean - A "mere inquiry" not a
counter-offer
(1880) 5 QBD 345 Queen's Bench Division
Traders wanted to sell some iron and indicated the price they
were looking for.
The plaintiffs, being brokers, would only buy once they had

lined up a buyer to
take from them. Early one morning, before trading on the
market began, they rang
the traders to find out what flexibility there might be to
negotiate before getting in
touch with potential buyers. The market was unstable and the
plaintiff wanted to
know the negotiating range. "please wire whether you would
accept 40 for delivery
over 2 months, if not, longest time limit"
Here, the court took the view that because the telegram was not
a counter-
proposal, but a mere inquiry it should not have been treated as a
rejection of the
2 of 16 3/9/2011 3:12 PM
offer.
As no notice of withdrawal was given by the offeror the
plaintiff could regard it as
a continuing offer, and their acceptance of it made the contract
complete.

If at the moment of communication of the revocation there had
been no
acceptance, the offer comes to an end and no contract can ensue
(unless
something happens to revive the offer). This proposition is
subject to a
qualification in the case of a unilateral contract in a situation
where, prior to
acceptance, the offeree has already embarked upon actions
forming part of or
moving towards acceptance of the offer.
Veivers v Cordingley - acceptance when consideration
commences
[1989] 2 Qd R 278 Full Court Supreme Ct Queensland
C was trying to buy some property which would have been
worth a lot more to
him if he could get permission to subdivide the plots. After
some complicated
exchanges, C said that if V could get the necessary permissions,
V would pay an
extra $200,000.
V set about getting those permissions, and whilst he was doing
so, C purported to
withdraw his offer. It was held that C's promise was a promise
by C in return for

an act to be done by V which, when performed, would form the
consideration for
C's promise and make him indebted for the amount of the
promise.
Starke J in R v Clarke said, "any person knowing of the offer,
who performs its
conditions, establishes prima facie, an acceptance of that offer".
All that V did
was in the hope that approval would earn him the sum. Unlike
Clarke V had no
other motive for doing what he did.
C claimed that no valid approval had been given, at least not
within the 12 months
specified, and that the offer had been withdrawn before the
approval was given
and the offer accepted. Was it open to C to do so - could he
retract the offer?
Normally an offer may be withdrawn before acceptance. But it
may be different
where we have a unilateral contract, and the promisee has
already started the act
which when completed will constitute the acceptance of the
promise.
Abbot v Lance (1860) is authority for the proposition that
although as a general
rule an offer may be retracted before acceptance, if it is in the
form of an offer for

an act, then acceptance takes place when the offeree elects to do
the relevant acts
or act the offer becomes irrevocable once the act or acts have
been partly
performed.
That decision would lead to judgment for V. C knew that V was
making active
efforts to obtain council approval. He incurred legal expense
with regard to the
appeal and for surveyors’ expenses for the new plan. It was only
after much effort
and expense had been incurred that C purported to withdraw the
offer - when he
knew that V had partly performed the acts which would
constitute the
consideration. On the authority of Abbott it was no longer open
to him to do so.
Actual communication of revocation is necessary and
appropriate where the
offeree is identifiable. Where an offer has been made, not to an
individual or small
and ascertained group of people, but to an indeterminate number
(such as the
readership of a particular newspaper), actual communication
may be impossible.
Does this means that such an offer cannot be revoked?

3 of 16 3/9/2011 3:12 PM
There is no clear Australian or English authority. See Shuey v
United States.
Can you revoke an offer after consideration has commenced?
(1875) 92 US 73
Options.
An offer is revocable even within any time limit for which the
offer is said to be
open, unless there is separate consideration for the promise to
keep the offer open.
In this case, there is then a separate contract - to keep the
promise open for a time,
and this type of contract is called an option.
They are most useful where the person who is thinking of
entering into a major
contract, wishes to have some time to carry out further
investigations or
evaluations. If those investigations involve the commitment of
some resources
(time, money) then the person conducting them would like to try

to guarantee that
if successful, they can reap the benefit of that initial expense.
The option is then a
way of encouraging this initial involvement prior to making a
major commitment -
it keeps one's "options open".
So, an offer is revocable, within any specified time limit, for
which the offer is said
to be open
Dickinson v Dodds - offer withdrawn within "time limit"
(1876) 2 Ch defendant463
One of the parties had "agreed to sell" a property to the other,
the offer to be held
open for a number of days. The so-called agreement was of
course nothing more
than an offer. The prospective buyer had heard that the vendor
was selling it to
someone else, and so attempted to give him notice of the
acceptance. It was held
that so long as the buyer knew that the other party intended to
deal elsewhere, the
offer was revoked. It did not matter that the buyer had not heard
of it from the
vendor himself.

Unless the promise to keep the offer open for a specified period
is supported by
consideration, i.e. it is a valid option.
An option is really a guaranteed opportunity to do something -
the guarantee takes
the form of a contract. An option to purchase within a specified
time, or at the
expiry of a lease would be an example. They are more
commonly encountered in
connection with land transactions.
An option is, in effect, a useful way to keep an offer open.
There are two ways of
looking at it -
The two contract view
The option itself constitutes a contract - which requires the
offer to remain on the
table for a specified period. If the option is exercised, then
another contract comes
into being at that time.
The one contract view
A contract comes into being when the option is granted, but it is
subject to a
condition subsequent, such that if the condition is not fulfilled,
the contract

terminates. Automatic termination unless something further is
done, looks a bit
like the creature we mentioned earlier - the contract which
excludes all liability.
4 of 16 3/9/2011 3:12 PM
If a contract is established which terminates automatically
unless something
further is done, it looks a bit like a contract without obligations
(at least for the
grantee) - nevertheless, it is a well established part of our law.
Goldsbrough Mort v Quinn - Conditional contract or irrevocable
offer?
(1910) 10 CLR 674 High Court of Australia on appeal Sup Ct
NSW
The defendant gave the plaintiff an option with regard to the
purchase and lease of
land. The option was to last for one week. Before the expiry of
that time,
defendant repudiated the option, saying it had resulted from a
mistake. Plaintiff
accepted the offer within the week.

The court re-iterated the standard view that a mere promise to
leave an offer open
for a period of time makes no difference - it is unenforceable.
But if there is
consideration for the promise it becomes binding - "an option
given for value is not
revocable". One of the judges took the view that what we have
is a conditional
contract. Another took the view that we have 2 contracts - a
unilateral contract
that the offer would stay open. An injunction could have been
used to prevent a
sale to another during that time. Otherwise, an acceptance turns
the position of
optionee to that of vendee. That has been done here. When the
judge says that
specific performance of the original agreement is not only
inappropriate but also
impossible, what does he mean? One can of course obtain
specific performance of
the main agreement.
Contractual obligations after death of party
Laybutt v Amoco - option - death of grantee / grantor
(1974) 132 CLR 57 High Court Australia

The general rule is that upon the death of a party, contractual
liabilities pass to
that person's personal representatives. This does not apply if the
contract is for
personal services which require the exercise of personal skill
and judgment.
It is important then to figure out if an option creates the type of
contractual right
which continues in existence after the death of one of the
parties, or whether it is
something less than that which ceases. To determine how death
affects an option
we have to see whether the death is that of the
Grantee - the holder of the right to exercise the option or of the
Grantor - the person who has provided the option
Death of grantee ? Where death is that of the grantee, whether
seen as a contract
or as a proprietorial right, the result is much the same, and the
option may be
exercised by or on behalf of the grantee's estate.
Death of grantor? If there is a contract subject to a condition,
then the contract
continues to bind the representatives of the grantor post
mortem. If the option is

an offer + a contract, then the question arises as to whether the
offer lapses upon
the death of the offeror [this is the ordinary rule relating to
offers] Should it be
different where the offer is such that the offeror could not have
revoked it inter
vivos? There are a number of conflicting cases in Australia and
the UK
Claim to equitable interest? On either view of an option, there
is a contract - but if
the contract is only not to revoke an offer, then clearly it cannot
give rise to an
equitable interest in the land. However, a conditional contract to
sell would clearly
create an equitable interest in the land and which could be
protected by a caveat
5 of 16 3/9/2011 3:12 PM
although it would be contingent.
Spiro v Glencrown Properties Ltd - is contract creation or
exercise of option?
[1991] Ch 536 Chancery Division

Was "the contract" the exchange of documents creating the
option or the letter by
which the option was exercised? If the latter - then it did not
comply with
statutory requirements.
The judge in this case took the view that there are "two
metaphors" which are
sometimes used to explain options - "irrevocable offers" and
"conditional
contracts". He said that strictly speaking, an option is not either
an offer or a
conditional contract. It does not have all the incidents of the
standard form of
either of these concepts - it is a relationship sui generis. 'There
are ways in which
it resembles each. Both of the analogies are, in the proper
context, valid ways of
characterising the option situation.
By lapse of time
An offer will not remain open indefinitely. It will come to an
end at the lapse of
time specified in the offer or at the end of a reasonable time if
no time is specified.
What is a reasonable time will depend upon the nature of the

transaction and the
circumstances as a whole.
Manchester Diocesan Council
[1970] - we looked at this case in the lectures on OFFER
This case makes a number of important observations about the
nature of
acceptances - 1.Offeror may specify that an acceptance be
provided in a
particular way, without requiring that acceptance be
communicated.
2. The offerer may specify that they will not be bound unless
the acceptance is
provided in a particular way. However, if acceptance is
communicated in some
other way, the offeror may waive the right to insist on that
precise method.
3.Where the offerer does not insist that only that one mode will
suffice, any other
no less advantageous method of acceptance will conclude the
contract.
Condition bringing an offer to an end.
Expressly stated or implicit in the offer may be an
understanding upon which the

continued existence of the offer depends. If that understanding
is no longer met,
the offer comes to an end.
Financings Ltd v Stimpson - hire purchase - car damaged - then
offer "accepted"
[1962] 3 All ER 386
Many people, when they buy a car from a car dealer, do not
realise that they are
in fact buying the car from the finance company who will pay
the dealer the price
of the car, and then recoup the payments from the purchaser.
Here, the defendant
signed a form, "offering to buy" a car on hire-purchase from the
finance company.
Before the company had accepted the offer, the car had been
stolen and damaged.
Not knowing of this the finance company then accepted the
written offer which
had been sent to them. Defendant refused to pay the charges and
the Co sued him
for breach of the hire purchase agreement. It was held that D's
offer was subject to
an implied condition that the car should continue in its
undamaged state and that
on the failure of that condition, the offer lapsed.

6 of 16 3/9/2011 3:12 PM
Death
It is said that the death of the offeror will bring the offer to an
end. However, the
effect of the death of the offeree or offeror on an offer is a
matter of the apparent
intention of the parties. Hence, if there is a personal element in
the proposal, even
if a contract could still be performed, it is likely that the
inference would be that it
is only capable of acceptance if the parties are still alive (or
were in some
circumstances to remain in good health). On the other hand, an
option for the
purchase of property in which there is no personal element
would be exercisable
irrespective of the death of one of the parties. Carter v Hyde
(1923) 33 CLR 115
Rejection of the offer
Clearly an outright rejection of an offer brings it to an end. It is
usually stated that
a counter-offer terminates the offer to which it is a response on
the assumption

that a counter offer always amounts to a rejection of the original
offer. But is this
necessarily so? See Butler machine Tool Ltd v Ex-Cell-O Corp.
Contracts that are illusory, incomplete or uncertain
An agreement is not binding as a contract if it lacks certainty
either:
(a) because it is too vague (i.e. linguistically uncertain) or
(b) because it is obviously incomplete.
Traditionally the area of certainty in contract was very much a
reflection of the
classical 19th century view of contract that parties must make
their own deals.
The courts will not fill in any gaps - they did not think it was
for them to perfect
an imperfect contract.
If the parties are not clear in what they meant OR
if they have left things to be agreed upon later, then the courts
will say
"Sorry you haven't really made a contract." It was up to you to
make a contract and
the job of the court is simply to enforce the contract which you
have made.
In recent times there has been a change of attitude (although the
prevailing view is

that the parties must have provided some formula in the contract
by which the
court can determine whether the requisite certainty has been
reached). The courts
have been more prepared to read into contracts terms which will
make the
agreements fair and reasonable in all the circumstances. This is
particularly so, if
the parties have gone some way in carrying out their agreement
so that turning
back is difficult, i.e. if there has been some element of reliance.
If however, the
uncertainty cannot be cured, then it may be used as another way
of saying that the
parties did not intend to create legal relations. Therefore
intention to create legal
relations and uncertainty are sometimes intertwined.
Illusory consideration
The hypothesis upon which this principle is based is that a
promise to do
something at the sole discretion of the promisor is not a legal
obligation at all. If
the promise is part of the consideration for the alleged contract,
the contract
remains unenforceable as long as it is executory. If performed
on the other side,

the promise remains devoid of content, although other parts of
the consideration
may be enforceable.
Biotechnology Australia Pty Ltd v Pace
7 of 16 3/9/2011 3:12 PM
(1988) 15 NSWLR 130 Court of Appeal Supreme Ct NSW
Here we had a contract of employment with an option to
participate in the
Company's senior staff equity sharing scheme. There was no
such scheme at the
time, and none was brought into effect. The judge referred to
the tension which
exists in the law - the desire to uphold a contract - the
unwillingness to uphold
terms which are unacceptably ambiguous or uncertain. Much
hinges on the fact,
and although courts will try to enforce agreements, they will not
spell out the
agreement where the parties have failed to do this for
themselves. Although the

provision may have been important to Dr Pace, it is too
uncertain, and there is no
proper standard to assist with its resolution. Allen J dissented -
at least the
company should behave honestly and reasonably, and that
expert evidence could
be of some guidance as to what it would be reasonable to do.
The principle is readily applied to the payment of a bonus over
and above the
ordinary salary or a commission for a one off service
Kofi-Sunkersetti v Strauss - commission to be paid at discretion
of company
[1951] AC 243 Privy Council
The agreement between the parties provided that a "commission
is to be paid to me
by the company which I have agreed to leave to the discretion
of the company". It
was held that the court could not determine the basis and rate of
the commission.
If the court was to do so, it would involve making a new
agreement for the parties
and varying the existing agreement by transferring to the court
the exercise of the
discretion vested in the company.
But could the court not have said that the discretion was as to

the AMOUNT of
the payment, not as to whether a payment was to be made at all,
and that in the
event of the company failing to make any payment, the court
could substitute a
reasonable amount as suggested by Allen J in Biotechnology
and in Way, which
follows. .
But where the discretion applies to remuneration for a job
extending over a
period, a court is likely to conclude that it was never the
intention of the parties
that the performer should act gratuitously.
Way v Latillar - commercial agreement not gratuitous,
reasonable sum
[1937] 3 All ER 759
In the case of a commercial or employment agreement under
which the promisee
provides services, the proper conclusion to be drawn is that the
services or
consideration were not intended to be performed gratuitously. In
the absence of
express words, it will be proper to conclude that the services
were to be paid for

by reference to some standard of measurement. The usual
standard is that of
reasonable remuneration based on some market or industry
criteria. Where there
is a firm promise to pay, the conclusion that the consideration
was illusory, will
only be drawn where no standard exists by which the promise
can be valued. But
even where no objective criteria can be found, it may be
possible to infer a
promise to act honestly and reasonably.
Powell v Braun - if not discretionary, then reasonable sum
[1954] 1 WLR 401 Court of Appeal UK
8 of 16 3/9/2011 3:12 PM
A secretary was promised a bonus based on net profits of the
company instead of
a salary increase. Evershed MR said that the parties did not
intend the bonus to be
purely discretionary. Once determined that the payment was not
discretionary,
then inevitably it means a reasonable sum. The principle of a
quantum meruit or

reasonable remuneration (which comes to the same thing)
applies just as much to
additional remuneration as where it is the only remuneration.
The Problem
A contract is incomplete if a vital term is not provided for and
there is no way of
filling the gap that has been left.
Coal Cliff Collieries v Sijehama (1991) 24 NSWLR 1
It is established law in England and Australia that agreements to
agree or contracts
to make contracts where the terms have not yet been ascertained
are not legally
enforceable. Until the terms are agreed the person can withdraw
from the
arrangement. May & Butcher - agreement to agree no contract at
all - to be
binding there must be a concluded agreement which settles
everything which is
needed to be settled and those things to be determined should
not be subject to
agreement between the parties. In Australia this is settled law,
see Masters v
Cameron - Booker Industries. .
The important question of course is "what are those things

which are needed to be
settled"? There is much difference of judicial opinion about how
particular we
should be about these things.
Masters v Cameron - subject to formal contract
(1954) 91 CLR 353 High Court of Australia (Supreme Ct WA)
An agreement was reached to sell a farming property subject to
the preparation of
a formal contract of sale which shall be acceptable to my
solicitors on the above
terms and conditions.
There are 2 possibilities - either we have a binding contract, or
else we have a
record of the terms which have been agreed so far, and which
will provide the
basis of the contract which is to be finalised.
1. The parties have finalised their agreement and intend to be
bound straight away,
but intend to put it into more precise form. An assent without
power to vary the
terms indicates a completed contract.
2. They have agreed all the terms, but have made performance
of one or more

terms conditional upon the execution of a formal document.
3. The parties do not want to be bound until they have
completed the formal
document. Here, the parties may wish to retain the right to
withdraw, if agreement
cannot be reached on outstanding matters. In this case if
"subject to contract"
means there are terms to be agreed, or conditions to be fulfilled,
then there is no
contract until those things have been done.
The courts are ready to try to provide the missing element
though they may feel
prevented from doing so where, for example, the parties
specifically express the
intention that it is for them alone to agree upon that element
May and Butcher Ltd v The King (1929) [1934] 2KB 17 -
discussed in
9 of 16 3/9/2011 3:12 PM
Sijehama.
This makes it difficult to understand what effect can be given to
an agreement to

negotiate
Walford v Miles [1992] 2 AC 128
Unanimously held that a bare agreement to negotiate has no
legal content.
Coal Cliff Collieries v Sijehama
A statement in a "heads of agreement" for a proposed complex
joint venture for a
coal mine said that the parties "would proceed in good faith to
consult together
upon the formation of a more comprehensive and detailed
Agreement". Held to be
too vague or uncertain to be enforceable. Kirby - plaintiff
rejected the idea that
such contracts were intrinsically unenforceable and that in some
circumstances a
promise to negotiate in good faith can be enforceable. It will
depend on the
construction of each particular contract.
Possible solution - a "machinery" clause
By machinery is meant a term which either deals specifically
with the means of
completing the contract (eg the price shall be fixed by a third
party valuer)

or provides a mechanism for resolving disputes (such as an
arbitration clause).
Cases in the first category are relatively straightforward for two
reasons
1. the common law long accepted that the price may be fixed by
the contract, or in
a manner agreed by the contract, or determined by a course of
dealings by the
parties - now enacted in the Goods Act (Vic) and Sale of Goods
Act (NSW) s13
(1). This would obviously include a price fixed by the valuation
of a third party
s14(1)
2. the leaving of the price to the decision of a 3rd party will
usually bring with it
the implication of a formula requiring a reasonable price to be
set between the
parties
Problems arise with this 2nd category, because arbitration is a
means of settling a
dispute about an existing contract, and not as a means for
bringing the contract
into existence.
May and Butcher v The King - see above

Whitlock v Brew - sale and leaseback, uncertainty, severability
(1968) 118 CLR 445 High Court of Australia
This was one of those sale and lease-back arrangements. A
person wants to sell
property which they own to raise capital, but they still want to
carry on their
business on those premises. What they can do is to sell the
property to another,
subject to the purchaser allowing them to take a lease for a
suitable period of time.
In this case, the sale was to be subject to a condition that the
purchaser would
then lease that part of the land at present used for the sale of
Shell products to
Shell upon such reasonable terms as commonly govern such a
lease. The issues
dealt with in the case were
Uncertainty The court took the view that even if the land to be
subject to the lease
could be identified, and the commencement date could be
determined, on no other
matter does the document indicate what the provisions are to be.
"Commonly
govern" might have worked, if there were a set of reasonable
terms in common

10 of 16 3/9/2011 3:12 PM
use - but this was not the case here.
Arbitration The agreement provided for disputes to be referred
to arbitration - but
this will not allow the arbitrator to force upon the purchaser
such terms as are
reasonable and ought to govern the lease - this would be to alter
the contract.
Even so, we could argue that this is what the parties have
consented to - and
doesn't the objective view do this in a whole variety of
situations?
So if we cannot make enough sense of the lease-back
provisions, can the rest of
the agreement stand if they are struck out? This is what is
referred to as
Severability Clearly the person selling had no intention of
granting vacant
possession without the provision for lease-back. To allow the
sale to stand without
the lease would be to change the nature of the agreement which

may give an
additional and considerable advantage to one of the parties, and
a considerable
disadvantage to the other. They parties cannot be held to
something which they
have not agreed to therefore there is no contract of sale
Such machinery will provide a resolution of the difficulty as
long as it is possible
to infer that there is already a contract, notwithstanding the fact
that some term in
the contract is potentially uncertain.
Court will state possible meaning
Council of Upper Hunter v Australian Chilling - more than one
meaning not
uncertain
The Council agreed to supply electricity to the Company with
provision for a price
variation which would reflect changes in its own costs, with
provision for
reference to arbitration in the event of a disagreement. That
there is more than one
meaning does not mean that a contract is void for uncertainty. If
it is capable of a

meaning, it will bear the meaning which the court thinks is its
proper construction.
Only where the language is so obscure and incapable of any
definite or precise
meaning, so that no intention could be attributed to the parties,
would it be void
for uncertainty. If the words were meaningless, then an
arbitration procedure
would not save the agreement.
It is also clear that the further the parties have pursued the
agreement, the more
likely it is that the courts will imply reasonable terms to give
effect to it.
Sykes v Fine Fare [1967] Denning MR. They will be more likely
to strike down an
agreement which is purely executory, than one which is
partially completed..
It is doubtful whether the agreement to arbitrate provides more
than an incentive
to apply a formula that is implicit in the clause giving rise to
the uncertainty
Meehan v Jones - subject to finance
This case involved a contract for the purchase of property which
was "subject to

suitable finance being available". Defendant argued
1. that the condition left vital matters yet to be agreed - so what
appeared to be a
"contract" was really no more than an agreement to agree.
2. that the language was so imprecise that one could not say
what actions would
satisfy it
11 of 16 3/9/2011 3:12 PM
3. that if plaintiff retains discretion as to whether they will
perform obligations,
then what appears to be a contract is really illusory.
Does the "subject to finance" indicate a subjective or objective
test? Is the finance
to be satisfactory to the purchaser? Or is the condition fulfilled
if finance is
available which the purchaser ought to find satisfactory? In
Australia and NZ, the
courts find "subject to finance" not void for uncertainty. NSW
has been an
exception, and they have found the clauses void, whether
objective or subjective.

- Moran v Umback [1966]
Satisfactory means "to the purchaser". An adventurous
purchaser should not be
prevented from proceeding because a reasonable person might
have been more
cautious - and a cautious person should not be required to
proceed if there is
genuine concern over the finance - the clause is to protect the
purchaser. Whilst
one may expect a purchaser to act honestly, there may be an
implication that the
purchaser will make reasonable efforts to obtain finance. To say
void for
uncertainty would be draconian - many cases where agreement
depends on
finance to complete.
Murphy J took the view that there is NO justification for
implying that the
purchaser must act reasonably.
As is the case where a contract which might otherwise be
uncertain has been
performed at least in part
Foley v Classique Coaches Ltd
[1934] 2 KB 1

A problem will arise if the machinery provided for in the
contract breaks down for
reasons over which the parties have no control. The traditional
common law rule
was that if the means for ascertaining the price failed, there
could be no contract
Sale of Goods Acts s14 NSW
Where there is an agreement to sell goods on terms that the
price is to be fixed by
the valuation of a third party and where such third party cannot
or does not make
such valuation the agreement is avoided.
George v Roach - no valuation, no sale price, no agreement
A case concerning the sale of a business in which the High
Court followed s14 and
said
The value of the newspaper agency is fixed through, and by
means of, a valuation
and by no other means. Unless a valuation is made the parties
have not agreed
upon the sale price of the subject matter of the agreement and
the agreement does
not become effective.

However the law in England has changed
Sudbrook Trading Estate Ltd v Eggleton [1983] AC 1 House of
Lords
Where the parties have failed to agree on the appointment of an
umpire to resolve
a difference of opinion between two valuers, the House of Lords
implied an
obligation to pay a reasonable price. Lord Fraser "I see the
reasoning which leads
the court to say that they will not substitute their own
machinery for that of the
12 of 16 3/9/2011 3:12 PM
parties, but the result that it leads to is so remote from what the
parties intended,
and so inconvenient that there must be some defect in it." The
valuers’ profession
is more established than it was in the 19th C. Often people do
not distinguish
between a sale at a fair value, and a sale at a value to be
ascertained by valuers.
It is doubtful whether the law in Australia will follow the same
route

Booker Industries v Wilson Parking (1982) 149 CLR 600 High
Court of
Australia
In a lease for a service station and car park, a clause provided
an option for a
further 3 years at rent "to be mutually agreed. If agreement
could not be reached,
then the matter was to be referred to arbitration". The court took
the view that
there was clear authority to the effect that the courts will not
enforce an
incomplete agreement - an agreement to agree - if the lease was
simply for
renewal at "rental to be agreed" there clearly would be no
enforceable agreement.
Yet parties can provide a procedure which allows even essential
terms to be
determined by a 3rd party. Where the lease provides a
mechanism to determine
the rent - no further agreement is required of the parties. Thus
there is a valid
agreement to renew - to give business efficacy to the
arrangement, it is necessary
to imply a term that the parties will do what is necessary to
ensure the

appointment of an arbitrator.
If there is a mechanism or procedure to deal with the missing
term, it is not right to
say that there is not a concluded contract and no reason why the
court should not
order specific performance.
Possible solution - a "formula" clause
A contract will not be incomplete where a formula exists to
provide the missing
term. The Sale of Goods legislation reproduces the common law
rule that, where
no price is fixed by or determined in accordance with the
contract, "the buyer must
pay a reasonable price" (s13(2)). But the scope of this principle
is relatively
narrow.
It has been held not to apply to assist in rendering certain an
option to repurchase
land at the original selling price plus and minus amounts to
cover various
improvements and depreciations to the property including the
chattels thereon.
Hall v Busst (1960) 104 CLR 206
The grant of an option for the purchase of land allowed for

additions and
improvements to the property purchased by the grantor and a
reasonable sum to
cover depreciation of buildings and property. HELD the option
was not
enforceable. It is not that the word "value" is meaningless - nor
is the expression
"a reasonable sum to cover depreciation". Giving meaning to
such words is what
the courts do every day. For a contract for the sale of land there
cannot be a
binding contract without 3 essential elements are the subject of
a concluded
agreement - the parties - the subject matter and the price. If
these are fixed with
certainty, the courts will supply the rest. If the parties are silent
as to price, there
can be no implication that a reasonable price is to be paid, even
if the agreement is
expressed to be "for a reasonable price".
Windeyer J dissenting said that as in Joyce v Swann (1864) the
price not being
named it must be assumed they meant a reasonable price. When
parties agree to
sell for a reasonable price the agreement is complete.

13 of 16 3/9/2011 3:12 PM
In Wenning v Robinson [1964-65] NSWR 614 the Full court of
the Supreme Court
of NSW after reviewing the authorities including Hall v Busst,
took the view that a
contract providing for the sale, of "stock at valuation" being the
stock of a clothes
shop was a valid contract.
Hall v Busst may not conform to the more modern approach of
attempting to
uphold a contract if at all possible. Where a contract provides a
formula instead of
a precise rate for goods or services or whatever is being
supplied, the courts will
attempt to give effect to the formula in order to render the
contract effective
Council of the Upper Hunter v Australian Chilling - discussed
above
Where a contract appears to give a party a total discretion
whether to perform, it
is possible to impose a limit on that discretion so that a court
may review the

circumstances in which it might be validly exercised
Meehan v Jones (1982) 149 CLR 571 High Court of Australia -
discussed above
Uncertainty
Types of uncertainty and their possible resolution
The contrast is with ambiguity. A contract is only uncertain and
therefore not a
valid contract if the ambiguity cannot be resolved.
Raffles v Wichelhaus (1864) 159 ER 375
The contract was for cotton to arrive "ex Peerless" from
Bombay . However, there
were 2 ships called Peerless, and each happened to be leaving
the port on different
dates. The purchaser said they intended one of them and the
vendor clearly
intended another. Because there were 2 ships with that name,
the agreement as
expressed was incomplete. With such divergence of intention
there was no
expressed agreement - no consensus.
Normally, however, the fact that there are alternative meanings
which can be
attributed to a contractual document does not amount to

uncertainty because the
document will bear the meaning which the court places upon it.
Stewart v Kennedy(No 1) (1890) 15 App Cas 75
The fact that a term may give rise to different meanings, does
not mean it will not
be given full legal effect according to the meaning put upon it
by the court.
Upper Hunter Council v Australian Chilling Co - discussed
above
Goldburg v Shell Oil Co of Australia (1990) 95 A.L.R. 711
Here we had an agreement to run a business which was breached
by Shell who
argued there was no contract.
The trial judge found that a contract existed between the parties
notwithstanding
that they had failed to reach agreement on items of relatively
minor importance.
The majority was prepared to put their faith in the finding of the
trial judge.
Dissent - for a contract for a lease to be valid, it must be
certain. It is uncertain if
the commencement date is not defined (Harvey, 1965). That
date was not defined

because neither party knew when the current occupiers would
move out. There
was consequently no contract. "In my opinion, once the date of
commencement
was known by all parties to be uncertain, and this was known in
March 1986,
there remained between them only an arrangement or
understanding in principle
14 of 16 3/9/2011 3:12 PM
which was not contractually binding." NB the uncertainty
appears to have arisen
after one might have thought that the contract came into being -
how could this
turn a binding agreement into a non-binding agreement?
Banque Brussels (1989)
The whole thrust of the law today is to attempt to give proper
effect to
commercial transactions. It is for this reason that uncertainty, a
concept so much
loved by lawyers, has fallen into disfavour as a tool for striking
down commercial

bargains. It the statements are appropriately promissory in
character, courts should
enforce them when they are uttered in the course of business
and there is no clear
indication that they are not intended to be legally enforceable.
Severance of an inessential and uncertain term
Even if a particular term is so ambiguous that a meaning cannot
be attributed to it,
the contract will not fail if the term in question can be discarded
without affecting
the substance of the transaction
Life Insurance Co of Australia v Phillips - extrinsic evidence
(1925) 36 CLR 60 High Court of Australia (from Supreme Ct
Victoria)
This case involved some insurance policies which had
complicated provisions for
making loans. The plaintiff brought an action claiming that the
policies were
induced by misrepresentation and that they were void.
The case for admitting extrinsic evidence there was that there
be more than one
meaning, or that there be ambiguity. This allows that wherever
there is ambiguity,
evidence can be admitted to show the intention of the parties.
Unless both parties

understood the words in the same sense, there is no consensus
and no contract.
This proposition is not warranted on principle or by authority.
Most documents are
capable of more than one meaning.
The general rule however is that extrinsic evidence is not
allowed to prove that the
intention of the parties was other than as appeared on the face
of the document.
That the words are capable of more than one meaning is not
enough to allow for
such evidence. Even if the provisions relating to the loan were
uncertain, they
could be severed from the rest of the contract which was not
uncertain.
When a contract contains a number of stipulations one of which
is void for
uncertainty, the question of whether the whole contract is void
depends on the
intention of the parties to be gathered from the instrument as a
whole. If divisible,
the void part may be separated from the rest and does not effect
its validity.
Nicolene Ltd v Simmonds [1953] 1 QB 543
Contract void if severance not possible

Severance is not possible where the term is an integral part of
the consideration
upon which the contract is based. Whitlock v Brew - discussed
above
Absurdity ignored in favour of obvious meaning
A common fault is the inclusion or omission of a negative with
the result that a
contract or part of it has the opposite meaning of what was
intended. A court may
give the contract its intended meaning where that is obvious
whether or not it
involves the insertion or exclusion of a word. In other words it
is not based upon
grammatical severance (exclusion) of a particular word or
clause.
15 of 16 3/9/2011 3:12 PM
Fitzgerald v Masters (1956) 95 CLR 240 High Court of
Australia (Supreme Ct
NSW)
Booker Industries v Wilson Parking - (1982) 149 CLR 600
Conditions Precedent and Subsequent - Contingent and
Promissory

Perri v Coolangatta Investments - precedent to contract, or
performance?
(1982) 149 CLR 537 High Court of Australia (Court Appeal,
Sup Ct NSW)
This involved an agreement for the sale of property subject to
the purchasers
completing a sale of their own property. The vendors became
increasingly
concerned about the delay in completing, and served a notice to
complete and
then terminated the contract. Some time later, the purchasers
said they were
willing to go ahead, and eventually they sold their property.
They, in turn asked
for SP of the contract of sale.
Mason pointed out that there was a difference between a
condition precedent [to
the contract] and a condition subsequent [to the contract] - the
latter allowing for
termination of the contract if it is not fulfilled. The courts tend
to favour a
construction which sees the condition as being a condition
subsequent rather a
condition precedent - or to put it another way, which sees the
condition as being
precedent to performance, rather than as precedent to the

contract. The judge,
very interestingly, gives the strategic reason underlying this
point of view. It is
because it gives the courts greater scope in adjusting the rights
of the parties. Why
is this? Well, if the condition is a condition precedent - and not
fulfilled - there is
only one outcome - no contract. But if it is a condition
subsequent, then (all other
things being equal) there will be a contract, but one which has
been breached in
some way. The courts then can provide a remedy commensurate
with their view
of the seriousness of the breach. There was a clear statement
here that the court
will not find a condition to be a condition precedent (to a
contract), unless the
document plainly compels this conclusion.
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16 of 16 3/9/2011 3:12 PM
Networked
Knowledge
Networked Knowledge - Law Lectures
Consideration - in Acceptance of Contract
Author: Dr Robert N Moles
contents
The issue of "consideration"
This involves an analysis of the different types of promises and
the ways in which
the court can ascertain which promises are intended to be taken
seriously enough
to be enforceable by the courts.
To be bound by a promise usually means that some sort of
sanction will follow for

not keeping it. With a breach of a moral promise, the sanction is
likely to be
ostracism or disapproval. With the breach of a legal promise,
the sanction will be
imprisonment, fine or community service for a criminal offence,
damages or
specific performance for breach in a civil case.
The lack of consideration is one reason then for saying that a
promise will not be
recognised by the courts. It is worth noting that the concept of
consideration is
peculiar to the English common law. Other systems, such as the
European Civil
Law system, will enforce gratuitous promises (Khouri and
Yamouni -
Understanding Contract Law)
Historical background
We have already seen how originally consideration was closely
related to the
causa of the civil law - it provided a motive for contracting and
a motive for why
the arrangement should be enforced. With the shift away from
motive to the
notion of a quid pro quo, consideration assumed an appearance
more recognisable
to the law of today. Nevertheless it would be a mistake to

imagine that the
consideration of the common law was a replacement for the
intention which was
the basis of promissory liability in the civil law.
See the problem of deciding whether a particular situation is a
conditional gift or a
promise supported by consideration if the condition is
performed by the promisee
The notion of exchange - consideration must move from the
promisee
To find out if a promise is enforceable, one must look to see
what the other party -
the person to whom the promise was given - has done in return
for it. If I promise
to do something, has the other party done anything for it -
promised to pay,
actually paid, delivered something to me etc. In most cases, this
is perfectly
straightforward - I have promised to build the extension to your
house and you
have paid me a deposit and agreed to pay the balance in stages.
A contract of guarantee can be difficult to see in this way -
think of a loan from
Bob to Beverley - Geraldine is asked to guarantee the loan (Bob

wants security as
Beverley is a student) - the general rule is that consideration
must move from the
promisee, but the provision of Geraldine's guarantee constitutes
good
consideration for the enforceability of the loan.
Formality is one way of providing it - a deed under seal
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Reliance can be another. It is a contentious matter as to the
extent to which this
has been adopted in our system. The modern case of Walton's
Stores indicates that
it may be becoming more important.
Consideration means that a promise made to you will not
necessarily be
enforceable in the courts unless you can establish that you have
given something
for it. Suppose I promise to deliver a ton of gravel to you next
week - you get your
shovel and barrow ready, and I don't turn up. I probably would
not be liable to you
in damages, because you haven't given anything in return, and
merely getting your
barrow ready would not be sufficient reliance to make it
enforceable. However, if
at the time of making the arrangement, you said that you would
pay me $10 per
ton for the gravel that would be sufficient consideration. A

promise to pay is
sufficient to count as giving something, even though the
promise is not to be put
into effect for some time yet.
Benefit and or detriment
Consideration is often spoken of as a benefit to the promisor or
a detriment to the
promisee. Some will make the point that a mere promise from
one party is neither
a detriment to that party, nor is it a benefit to the other. Atiyah
also argues that
real benefit and detriment is not sought, because of the
adequacy point - that the
courts will not concern themselves with the adequacy of
consideration - a point
we will look at in a moment. Is it really a benefit to someone to
get $1 for a car?
Maybe not, but it may well be good consideration
The Logical Problem
The promise might, of course, become a benefit or a detriment
if it is enforceable.
But its being a benefit or detriment is a condition of its
enforceability, and
therefore, one should be able to establish that it is a benefit or
detriment,

independently of that.
Quid pro quo - Beaton v McDivitt - bargain theory - the way to
go
(1987) 13 NSWLR 162 Court Appeal, Sup Ct NSW
McD believed his land was to be rezoned. He worked part of it
and sought
someone to work the other as permaculture. B's took the 4th
block, built a house
farmed the land and assisted to create access road. After 7 years
they had a
dispute and B's were ordered off the land.
Historically, there is little difference between the common law
consideration and
the Roman causa. But in the 19th C there was a shift from
motive and reliance to
bargain. So in Thomas, (1842) we distinguish motive from
consideration - which is
something of value moving from the plaintiff. Currie v Misa:
A valuable consideration, in the sense of the law, may consist
either in some
right, interest, profit, or benefit accruing to one party, or some
forbearance,
detriment, loss or responsibility given suffered or undertaken by
the other.

This is the bargain view, supported by O.W. Holmes and
approved in R v Clarke
(1927). The ratio of Woollen Mills accepts the basic elements of
the bargain
theory, and rejects the reliance based view. None of the cases
referred to by the
judge can be seen as contract unless there is a quid pro quo.
McD's promise was an offer the consideration for which was the
act of the
plaintiff in coming and working the block. Once he went on to
the land to work it,
2 of 20 3/9/2011 3:11 PM
it was not open to McD to withdraw the offer.
Australian Woollen Mills v The Commonwealth (1954) 92 CLR
424 High
Court of Australia
This case involved a subsidy scheme to assist local
manufacturers to remain
competitive in their use of wool. Plaintiff claimed to have made
purchases of wool
"in pursuance of the said agreement", during a period for which
the Govt was

unwilling to pay. Here, the announcements were not from
commercial motivation
but from a Govt trying to deal with the aftermath of war - public
money is
involved. To what extent is this important in explaining the
decision? The court
took the view that the subsidy was not a request, invitation or
an inducement to
purchase wool - would you agree with this? There was nothing,
they said, to
suggest that the subsidy and purchase of wool were related, no
quid pro quo.
Govts can of course make contracts in the normal way -
purchase of equipment,
employment etc. But in this type of case, it may have been
thought that this was
an attempt to bind the Govt in a policy type of situation where
flexibility was
more important.
The privity rule
The general rule is that only those who are parties to a contract
can enforce it or
have rights under it. Other people might benefit indirectly from
the contract being
enforced, but the third parties cannot bring legal action in their

own name to have
it enforced.
This is why the manufacturer in Donoghue v Stevenson denied
liability - because
they did not have any contract with the consumer (the cafe
owner did) and they
thought there was no other ground of action.
Otherwise it is claimed that a third party to a contract, intended
to benefit from it,
but who has not given consideration for the promise of the
promisor, cannot
obtain enforceable rights under the contract. If the promisee
wishes to sue for
damages for the benefit of the third party, there is some
question as to whether
anything greater than nominal damages can be obtained - if the
loss is that of the
third party and not the promisee. The promisee may be able to
have the contract
specifically enforced for the benefit of the third party, but this
may not always be
satisfactory.
Agency is different
The normal agency relationship is not really a qualification to
this, because the
agent is bringing the principal into a contractual relationship

with the other party.
The Agent as such is not a party to the contract. However, the
"undisclosed
principal" makes it slightly different. So long as the agent has
authority, and
intends to contract for the undisclosed party, and the other party
has not shown
that they are unwilling to enter into the contract with another
(even though they
do not know of the other's existence) then the agent can contract
on behalf of that
principal. In this situation, the agent and the principal can sue
and be sued, but
there must be something like an election, as you could not
proceed against both.
Trust is different
A trust is used where someone has the legal title to something
(a contract) but is
then taken to be holding it not for their own benefit but for the
benefit of a third
party. It is possible that the third party could claim that the
promisee holds the
3 of 20 3/9/2011 3:11 PM

benefit of the promise on trust for that third party so as to
enable them to get
around the rules of contract law? See the discussion on this in
Trident.
Trident General Insurance Co Ltd v McNiece Bros Ltd
(1988) 165 CLR High Court of Australia (Court Appeal, Sup Ct,
NSW)
A company took out public liability insurance for construction
work being carried
out at the plant. The "assured" was stated to be contractors and
sub-contractors.
McN became a principal contractor for construction work being
carried out at the
plant. A worker injured at the site obtained judgement against
McNeice who
sought an indemnity under the policy. Trident denied liability.
Trident says there are 2 important principles
Only a party to a contract can sue under it
Consideration must move from the promisee
Is privity was just another way of putting the consideration
point? These

fundamental rules have been under siege throughout the
common law world.
Rules which generate uncertainty in their application to
ordinary contracts
commonly entered into by citizens call for reconsideration.
Justifications for privity and consideration rules? Preclude risk
of double recovery
from the promisor by the promisee and the third party. Privity is
a barrier for the
contracting party to a whole range of potential plaintiffs. Third
party right to sue
would limit freedom of action of parties, especially the
promisee. At present, with
the consent of the promisor, the promisee could rescind,
modify, compromise or
assign rights under the contract. Could even take rights intended
for the third
party.
Corbin "Third Party Beneficiary Contracts in England" 1968 35
University of
Chicago Law Review said that third party rights would exist at
the expense of the
rights of the contracting parties. Should there be just intention
to benefit third
party, or also intention that third party should be able to sue?
Regardless of the layers of sediment, we consider that it is the

responsibility of this
court to reconsider in appropriate cases common law rules
which operate
unsatisfactorily and unjustly. Estoppel is not adequate and even
if it were, the
rights of persons under a policy of insurance should not be
made to depend on the
vagaries of such an intricate doctrine.
The likelihood of reliance of the third party in the case of
benefit to be provided is
so tangible that the common law rule should be shaped with that
in mind; even
more so when the insurance is said to cover the insured and the
subcontractors.
Many will assume it to be effective and refrain from taking
other cover. That is
what happened here. But why should respondent depend on
making out a case of
estoppel?
Notwithstanding the caution with which the Court ordinarily
reviews earlier
authorities, and the operation of long established principle, we
conclude that the
principled development of the law requires that it be recognised
that McNeice was
entitled to succeed in the action. Appeal dismissed.

Brennan J took a much more cautious view and thought that this
change would
not fit in with the overall system of law and was foreign to the
system of the
common law.
4 of 20 3/9/2011 3:11 PM
Gaudron thought that the third party would have a right based
on principles of
restitution and unjust enrichment.
New Zealand Shipping [1975] AC 154
This seems to be a clear example where the judges clearly
avoided the privity
rules in order to give effect to the business efficacy of the
contract and the
intention of the parties - they had clearly intended all along that
the stevedores
would be covered by the exemption clauses and presumably
insurance
arrangements had been made on this basis.

The exclusion clause deemed the carrier to be trustee and agent
for the
independent contractors.
Carter and Harland ask if it would not have been better for the
courts to declare
that privity is no longer a part of the modern law of contract -
but what then of all
the difficulties which Brennan in Trident pointed to?
Port Jackson Stevedoring v Salmond (1978) 139 CLR 231 High
Court of
Australia
(1980) 144 CLR 300 Privy Council
The decision of this case further supported the New Zealand
decision. The
"Himalaya clause" is capable of conferring upon a third party
falling within the
description "servant or agent of the carrier", defences and
immunities conferred
by the Bill of Lading upon the carrier as if such persons were
parties to the
contract contained in the Bill of Lading. Stevedores employed
by the carrier will
also come within it. It was said that this was not so much a new
principle, as
finding that accepted principles require the stevedores to obtain
the benefits. The

importance of that case is the way in which the judges were able
to find a contract
between the shipper and the stevedores. Their lordships would
not encourage the
seeking of fine distinctions to diminish the applicability of the
general principles.
More recent cases enable this to be perhaps developed to other
forms of transport
- Celthene Hauliers [1981] and Frigmobile [1983]
Adequacy of consideration
The normal rule for contracting is caveat emptor - let the buyer
beware. As the
buyer has not only the best incentive, but also the best
opportunity to assess the
situation and the relative merits of the exchange, the court will
not be drawn into
assessing whether or not someone has made a good deal, or
whether they have got
good value. The value of something does not consist merely of
what it is
objectively, but also upon the needs of the purchaser.
Woolworths Ltd v Kelly (1991) 22 NSWLR 189
Kirby Plaintiff suggested that whilst certain things given as
consideration might
seem inadequate to the court, they may in fact be valued as

consideration for
idiosyncratic or sentimental reasons by the promisor.
I throw away my telephone cards but others place great value on
them and there is
a brisk collectors market for them.
A book may only be of certain value on its own, but if you have
all the other
books in that series, apart from that one, then you may well be
willing to pay more
for it. If there is no unfair advantage, then the courts will not
look at the
5 of 20 3/9/2011 3:11 PM
ADEQUACY of the consideration. There might be extreme
cases where a deal is
such an obviously bad deal that the courts will infer that there
was in fact some
unfair advantage present. See CBA v Amadio (1983) for an
example of this.
Thomas v Thomas - nominal rent and covenant to repair
(1842) Queen's Bench UK

Here we had a promise to convey a house, provided Plaintiff
paid £1 pa rent and
kept the premises in good repair. The provision for payment and
the obligation to
repair were held to be quite sufficient consideration for a
contract. The moral
feeling which motivated it was seen to be not relevant.
Given that the courts say that they will not be drawn into the
adequacy of the
consideration, does that mean that if I promise to do something
for you in return
for something which appears to be of negligible value, that the
promise is still just
as binding? What if I ask you to send in packet tops, or milk
bottle tops, does that
count as some "value or detriment"? The answer could well be
YES.
Chappel v Nestles - chocolate bar wrappers
[1960] House of Lords
Nestles asked people to send in wrappers from chocolate bars.
The repeated doing
of something, of value to the promisor, was held to be part of
the consideration,
even though in one sense the wrappers were worthless. One of
the judges making

the interesting point that a peppercorn does not cease to be a
good consideration if
it is established that the promisor does not like pepper and will
throw away the
corn.
Thus, an option is binding because a relatively small sum has
been paid or
promised in return for a right to have an offer kept open for a
specified period,
though the consideration if the option is exercised may be an
astronomical amount
by comparison.
Forbearance and Compromise
Practically all tortious actions are settled out of court. Each
time a claim is settled,
the plaintiff will be asked to sign a document to say that the
payment is accepted
"in full and final settlement of the claim" - making any further
legal action in the
matter no longer possible. Forbearance and compromise is
present in all
settlements - "forbearance" being the willingness not to proceed
with the action,
"compromise" being the actual settlement.
The consideration is said to be the giving up of one's right to
use the courts - to

sue. But what if the initial action was without merit - has one
given up anything?
The assumption is that you have unless it can be established that
the action was
started without good faith. This could be a difficult thing to
prove.
There is an important public policy issue at stake here. There is
a public interest in
seeing an end to litigation, to avoid a case from constantly
being re-opened. On
the other hand, it might be seen as a way of converting a
somewhat shaky claim
into a more certain claim.
Wigan v Edwards - (honest belief sufficient)
(1973) 47 ALJR 586 High Court of Australia
P agreed to buy a house from Defendant for $15,000. Before the
formal
6 of 20 3/9/2011 3:11 PM
documentation was completed, Plaintiff said they had found
defects and were not

going to proceed. In return for their promise to go ahead,
Defendant gave an
additional promise that any major faults within 5 years from
purchase, would be
put right. [This situation is like that of exemption clauses which
appear after the
event, or like Roscorla v Thomas where the purchaser attempted
to get additional
promises after having agreed the purchase of the horse].
The court took the view that the general rule was that to
perform an existing duty
is no consideration. A qualification to the general is that to
promise do what one is
bound to do is good consideration when it is given by way of a
bona fide
compromise of a disputed claim - the promisor believing that
circumstances exist.
Here it was suggested that the work was shoddy, and although
the defects
complained of may not have allowed the party to pull out of the
contract
altogether, this did not matter - so long as the issue taken up
was bona fide - it
does not matter that the court may take the view that the claim
may have been
unsuccessful if pursued. Only that there should be an honest

belief - that the claim
should not be vexatious or frivolous.
As with other contractual relationships, the arrangement might
be bilateral (a
promise for a promise) or unilateral (a promise or request,
express or implied,
followed by an act in reliance upon that promise or request).
Wigan v English and Scottish Life Assurance Association -
security w/o
consideration
[1909] 1 Ch 291 Chancery Division
Hackblock had a life insurance which was to be forfeited if the
insured committed
suicide, but without prejudice to the bona fide interests of third
parties. He owed
money to Wigan, and had effected an assignment of the policy
to secure the debt
in order to obtain more time to pay. Wigan gave him more time
without knowing
of the assignment, which was subsequently destroyed. After
Hackblock had
committed suicide, Wigan learned of the assignment, and
claimed benefit under
the policy as an assignee for valuable consideration.
Wigan did not give any consideration for any interest he might

have acquired
under the deed. The mere existence of a debt from A to B is not
sufficient
consideration for the giving of a security from A to B in respect
of it. Such
security may well be given in return for extra time to pay, or for
forbearance to
sue. None of those things existed here, therefore the security
was voluntary.
Butler v Fairclough - abandonment of claim as consideration
(1917) 23 CLR (Isaacs J)
It must not be assumed that a promise to abstain from issuing a
writ is always
valuable consideration. A promise not to sue for a limited
period, as abandonment
of a claim may be good consideration where there is liability or
a bona fide belief.
But temporary forbearance to sue where there is no liability is
no consideration.
Callisher v Bischoffsheim - Doubtfulness of original claim not
relevant
(1870) LR 5 QB Queen's Bench
A person promised not to sue for an agreed time, provided that
some bonds were
delivered to them. When the bonds were not delivered, the

person claimed
damages for breach of that agreement. The other person said
that, as the money
had not been due in the first place, (assumed for the purpose of
these proceedings
7 of 20 3/9/2011 3:11 PM
that that was true). they could not enforce the delivery of the
bonds. The court
took the view that if D's claim were accepted, no agreement to
compromise a
doubtful claim could be enforced. If a party to an action
believes bona fide that
there is a chance of success, then there is reasonable ground for
suing and the
forbearance will constitute good consideration. The other party
obtains an
advantage - being free from the necessity to defend the action.
If a party made a claim which they knew to be unfounded - then
an attempt to
derive an advantage by compromise would be fraudulent.
Essential to understand

that there are in fact 2 contracts - the initial contract which is
the subject of the
dispute, and then the 2nd contract which is intended to settle the
dispute arising
from the first. The question is whether there is consideration for
the 2nd contract,
and what effect this has on the obligations arising from the first.
McDermott (D) v Black (P) - Accord executory and accord and
satisfaction
Plaintiff complained that an initial agreement which had become
the subject of a
dispute between the parties, had been induced by fraud. Plaintiff
then said that he
would withdraw the allegations of fraud, in return for a further
3 week extension
of time to pay, which was agreed to. Plaintiff did not pay
eventually, and
subsequently brought proceedings for fraud, and sought the
return of his security.
The lower court held that the initial agreement had been based
on fraud, and that
the negotiations between Plaintiff and Defendant were too
vague to constitute a
contract of compromise. On appeal, HELD the arrangement was
to release from

an obligation to pay damages for deceit - in return for an
extension of time -
"which is in law an accord and satisfaction". There is no doubt
that the general
principle is that an accord without satisfaction has no legal
effect and the original
cause of action is not discharged as long as the satisfaction
agreed upon remains
outstanding. However, if it can be shown that the parties agreed
to accept the
promise and not the performance of the promise, then the cause
of action is
discharged from the date that the promise was made.
One of the other judges took the view that the agreement to
withdraw the
allegations did not amount to an agreement not to revive the
allegations at any
time. This can be seen to be a difference of view re the
underlying facts, and not a
difference re the legal principles involved.
Past Consideration
If an act is performed then a subsequent promise to pay by
reference to that act is
not enforceable as the consideration was past.
This gives rise to some interesting problems. Can something be

good consideration
for this contract, if it has already been consideration for a
previous contract? In
which case, you may only be promising to do again what you
are already obliged
to do. Today, one would have to be mindful of the extensive
additional protection
available under the Sale of Goods Acts and other statutory
provisions such as the
Trades Practices Act.
Roscorla v Thomas - horse free from vice - additional promise
after sale
(1842) 3 QB 234 Queen's Bench
In this case someone had already bought a horse, and then
obtained some extra
undertakings from the seller "in consideration of that sale". The
sellers additional
8 of 20 3/9/2011 3:11 PM
promises were that, the horse was not more than 5 years old,
was "sound and free
from vice" - presumably it did not stay up late at night playing

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