LAWS105 Lecture 2: LAWS 105 - WK 2 - FORMATION OF CONTRACTS
LAWS105 – CONTRACT LAW
Wk. 2 - Formation of Contracts
Certainty
4 factors where an agreement may be considered uncertain where:
1. Vague or ambiguous
A contract will be non-binding due to being vague or ambiguous if a definite
meaning cannot be given to the words used in the contract (that is, the court cannot
work out what was intended)
Courts are reluctant to refuse enforcement if they can resolve the ambiguity
(more than one meaning will not necessarily make the contract uncertain).
Courts aim to determine the intention of the parties via: Extrinsic evidence to
explain words/phrases, custom or trade usage or applying a reasonable construction
test
Cases with vague/ambiguous meaning include:
Scammel v Ousten [1941] 1 All ER 14
•Parties (motor dealer and a purchaser) entered into an agreement for sale of
a motor van on “hire purchase terms”.
•Unclear whether the hire-purchase is by the appellant motor dealer or a
financier. Lord Wright: “It was not even clear who were to be the parties to
the hire-purchase agreement or what their respective roles were to be”.
•Also unclear on terms of the hire-purchase: Interest? When did the agreement
start? When did transfer of title occur, and from the dealer or the financier?
•The term “hire purchase agreement” was uncertain – no sense could be
made.
•Not possible to attribute to the parties any particular contractual intention.
•HELD: “hire purchase terms” was too vague to constitute a concluded
contract.
•Viscount Maugham: “In order to constitute a valid contract the parties must
so express themselves that their meaning can be determined with a reasonable
degree of certainty. It is plain to see that unless this can be done it would be
impossible to hold that the contracting parties had the same intention...”.
There was no concluded contract.
Raffles v Wichelhaus (1864) 2 H & C 906
•Plaintiff agreed to sell cotton to the defendant.
•Cotton was described as cotton arriving “ex Peerless from Bombay”.
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•Two ships named “Peerless” left Bombay with cotton.
•Plaintiff intended to refer to one ship and the defendant the other. The
defendant refused to accept delivery.
•HELD: no contract because of ambiguity. The parties referred to different
ships and there was no meeting of minds.
Council of Upper Hunter County v Aust Chilling (1967) 118 CLR 429
•Council entered into a contract to supply electricity to ACF.
•Clause 5 of the contract stated: “if the Supplier’s costs shall vary in other
respects than has been hereinbefore provided the Supplier shall have the right
to vary the maximum demand charge and energy charge”.
•Council sought to increase its charges.
•ACF said the term “supplier’s cost” made the contract void for uncertainty.
NSWCA agreed – and the Council successfully appealed to the High Court.
•BARWICK CJ: Australian courts are slow to find an agreement void for
uncertainty. In this case – there was no uncertainty – even though there is
scope for disagreement about what constituted suppliers costs in an individual
case. “So long as the language used by the parties... is not ‘so obscure and so
incapable of any definite or precise meaning that the court is unable to
attribute to the parties any particular contractual intention’, the contract
cannot be held to be void or uncertain or meaningless.”
•Courts will seek to uphold agreements (particularly commercial agreements)
wherever possible. Courts duty is to give effect to a discernable common
intention by: admitting extrinsic evidence, referring to custom, and importing
standards or reasonableness.
2. Illusory
A promise is illusory if one party has the sole discretion to preform or abandon
their obligations altogether
Example: Bob promises to supply Jane with apples if Jane pays Bob a price to
be determines at Jane’s absolute discretion.
In Davis V General Foods Corp, General Foods agreed to buy services from
Davis at a price solely within its discretion.
The difference between illusory terms and uncertain terms can be seen in:
Biotechnology Australia Pty Ltd v Pace, Pace entered into an employment contract
with Biotechnology Australia, which provided that he would have the option of
participating in a staff equality scheme. No such scheme existed. The contract was
illusory and unenforceable. It was at the discretion of Biotechnology Australian to
provide an equality scheme.
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3. Incomplete
Is the contract sufficiently complete to be enforced(every contract has a
different extent of detail
Generally parties must deal with the essential terms for the agreement to be
enforceable. Usually an essential term is price: but is Sale of Goods legislation
applies (s13(2) of the sale of Goods Act 1958 (Vic)) then if the price is not fixed,
the buyer must pay a reasonable price.
If a contract contains a suitable mechanism to resolve incomplete elements,
then the contract may be valid, eg. parties want to enter into a contract – but some
details need to be resolved. So long as there is a mechanism for completing the
contract in the future (eg. a 3rd party expert resolves a matter, or, an interest rate is
set by the Reserve Bank on a specified date) – then the contract may be considered
to be sufficiently complete.
Two cases where “completeness” is at issue:
ANZ Bank v Frost Holdings Pty Ltd [1989] VR 695
•The issue was whether there was a contract between Frost and ANZ for Frost
to produce
•Calendars for ANZ.
• ANZ did not wish to proceed and Frost claimed breach of contract.
•Was the contract complete where the parties had not agreed on style, design,
quality, content or number of copies to be produced.
•The Full Court found that the contract was incomplete.
•A contract can leave matters for determination in the future – but this must
not depend on a further agreement being reached between the parties.
•If matters are essential matters that require further agreement between the
parties themselves – then the matter cannot be resolved later if the contract is
to be complete;
•Non-essential details may be determined at a later date (eg, precise location
for delivery).
Godecke v Kirwan (1973) 129 CLR 629
•Godecke and Kirwan entered into an agreement for the sale of land by
Kirwan to Godecke.
•The agreement stated that, if Kirwan required it, Godecke would execute a
further agreement as determined by Kirwan’s solicitors.
•Kirwan did not want to proceed with the sale and the trial judge found that
the agreement was non-binding due to being incomplete.
•The High Court allowed the appeal:
•A binding agreement may leave some important matter to be settled by a third
party or even one of the parties (but not between the parties);
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Document Summary
4 factors where an agreement may be considered uncertain where: vague or ambiguous. A contract will be non-binding due to being vague or ambiguous if a definite meaning cannot be given to the words used in the contract (that is, the court cannot work out what was intended) Courts are reluctant to refuse enforcement if they can resolve the ambiguity (more than one meaning will not necessarily make the contract uncertain). Courts aim to determine the intention of the parties via: extrinsic evidence to explain words/phrases, custom or trade usage or applying a reasonable construction test. It is plain to see that unless this can be done it would be impossible to hold that the contracting parties had the same intention . Raffles v wichelhaus (1864) 2 h & c 906: plaintiff agreed to sell cotton to the defendant, cotton was described as cotton arriving ex peerless from bombay .
