Law of Contracts 241
Lecture 1 – Introduction
Ø Basic definition – an agreement between two or more parties involving one or more
promises that are given for something in return and that the parties intend to be
legally enforceable
Ø Beginning of the contract is the negotiation stage – what happens before a contract
is formed – the parties are talking with each other about terms
Ø Negotiations depend on the power balance – as consumers don’t have much
negotiation with the companies which usually provide a standard terms and
conditions – while companies that negotiate with each other
Ø Middle period – is the formation process – the terms of the contract – how is it to be
interpreted
Ø Most contracts are performed – some contracts are breached – for which law
provides compensation – to recover the loss to the party(ies) who suffered a loss
Ø Some contracts can be oral, but most are written – the sale of property must be in a
written contract to allow for certainty
Ø Parties must have an intention to create legal relations
Ø Contracts are an exchange – you are doing something for me, and I do something for
you – gratuitous exchanges are not considered contracts – key element is
consideration in NZ law
Ø Contract law doesn’t protect people from their own stupidity – for example if you
sell a luxury car for $10 the court cannot protect you
Lecture 2 – What are Contracts
Ø Bilateral contracts – almost all contracts are bilateral – they impose obligations on
both parties
Ø Unilateral contracts – only one party is undertaking an obligation – contract of
reward is one example – offering a reward of $1000 to anyone who completes a task
– one party is bound to pay the reward, but the other party is not bound to try and
receive the reward
Ø NZ contract law is largely derived from English contract law – key element is
decisions made by judges – the influence of English contract law had gradually
diminished after 1960s
Ø NZ statutes were made to rectify the common law – Contract and Commercial Law
Act 2017
Ø Law of restitution and law of tort regulate around contracts – restitution works on
the idea that where one person receives money or service from another even in the
absence of a contract in some situations they are required to give up the money or
pay for service – usually referred to as unjust enrichment – mistaken payment –
there are certain cases in which a contract is void, voidable or unenforceable
Ø Law of tort – tort law also covers cases of economic loss
Ø Hedley Byrne v Heller (1963) – one party asked for advice about their company – the
party gave that advice saying that the company was solvent – the advice was given
without payment meaning no consideration meaning no contract – despite there
, being no contract there was liability – the case was decided that there was liability –
this extended the scope of negligence
Ø This opens the floodgates argument as to where to draw the line for such cases –
there is also a problem as to why you can bring a case for something you don’t pay
for
Ø It is argued that contracts should operate under certain principles to allow for
consistency – however, they are interpreted differently by different judges and the
context of the contract is also important in deciding
Ø Parties breach a contract for reasons such as – the fulfilling the contract is no longer
beneficial to the party (especially in markets that a volatile), you are unable to
perform the contract (set price too low or natural disaster)
Ø To see if the parties have agreed you must look at their intentions – these can be
determined subjectively or objectively
Ø Subjectively agree – both parties agree on Term C within the contract – both agree
that Term C is part of the contract
Ø Subjectively Disagree – one party intends on Terms C with the other party and the
other agrees to Terms D – in this situation there is no contract
Ø Objective view – if the party has agreed on term C the other party cannot turn
around and say they intended something different
Lecture 3 – Objective sense of a Promise
Ø Denny v Hancock (1870) – the dispute here is about the size of the land being sold –
the purchaser was provided a plan by the seller and they inspect the land – they
believed they were buying the land up to the iron fence with the giant 3 trees –
however, the boundary was shown with some stumps that were hidden by shrubs –
they enter in a contract of sale – the purchaser realizes the land is smaller than they
believed – they refused to pay and complete the contract – vendor seeks specific
performance to complete the contract – specific performance was refused
Ø The question is whose interpretation is correct to a reasonable person – reasonable
person would be at the same view as the purchaser
Ø The buyer relied on the plan – the plan was giving the buyer the impression that it
was selling the bigger piece of land not the smaller piece of land
Ø Any reasonable person would believe that they were buying the bigger piece of land
Ø Specific performance was refused – only reason to order specific performance is if
the plans gave clear view that the small piece of land was being sold
Ø Tamplin v James (1878) – on an objective test – the agreement reflected the seller’s
intentions – contract was completed on the seller’s terms – the court ordered
specific performance
Ø In this case there was no attempt to mislead in the size of the land – the plans were
accurate – the purchaser thought the land was bigger than in the plan – the
reasonable person would assume the size of the land was as it would be in the plan
Ø In this case there was no attempt to mislead in the size of the land – the plans were
accurate and visible – it was the purchaser who got it into their head that the land
was bigger than intended
Ø Smith v Hughes (1871) – Blackburn says – If, whatever a man’s real intention may
be, he so conducts himself that a reasonable man would believe that he was
assenting to the terms proposed by the other party, and that other party upon that
, belief enters into a contract with him, the man thus conducting himself would be
equally bound as if he had intended to agree to the other party’s terms
Ø This suggests that no matter what the subjective view of the man they are agreeing
to the terms proposed by the other party
Ø However, there is also a 3rd stage in which the party needs to demonstrate that the
other party was agreeing to their terms – for example if a reasonable person
believes that the term is A and not term B – the party needs to also prove that they
intended term A and there was no misrepresentation which would lead the other
party to believe it was term B
Ø This stage helps to solidify the objective test – as sometimes a party can be misled
into believing they are agreeing to different terms
Ø Raffles v Wichelhaus (1864) – in this case a ship named the Peerless was travelling
from Bombay to Liverpool carrying cotton – the buyer refused to accept the
shipment in December as they expected to buy it in October – however, there were
two ships named Peerless travelling – one in October and one in December – due to
this ambiguity they contract was considered void as the terms were not clear and a
reasonable person would believe either party is correct – this is considered a mistake
– Doctrine of Mistake – parties have agreed but they have agreed on unstated
assumptions
Ø The party must prove that the reasonable person would reach the same conclusion
as their terms as well as the other party would reach the same conclusion as the
other party – there was no misrepresentation
Lecture 4 – Intention to create Legal relations
Ø There needs to be an intention to create legal relations between parties – the
agreement must be supported by consideration or a deed
Ø Statement is made in which there is no intention to create legal relations –
statement made not intended to be taken seriously – “Mere puff”
Ø Lambert v Lewis (1982) – manufacturer of the tow bar – stated that the tow bar was
full-proof and required no maintenance – plaintiff argued that these were contract
terms (contractual warranty) – tow bar had come lose and there was an accident –
these terms were breached and they could bring a case – HOL said they were not
intended to have legal effect
Ø Domestic agreements are not considered contracts as there is no intention to create
legal relations – note: law isn’t saying these cannot be contracts – there is a
presumption that domestic agreement is not intended to have legal force – this is a
presumption that you ca rebut – if the evidence show that the parties intended to
enter into a legally binding contract there is a contract – ultimately about what the
parties want
Ø Balfour v Balfour (1919) – a husband who worked in Sri Lanka would send money
back to England for his wife – he stops paying her – the wife seeks to enforce the
agreement – Justice Etkin said the agreement was outside the realm of contract – it’s
a presumption that no is intended
Ø Law presumes that when parties enter into a commercial relationship there is a
contract
Ø Jones v Padavatton (1969) – concerns a mother and daughter – mother lived in
England – daughter was a secretary in the USA – the mother said to the daughter if
, she came to England to read to the bar she would pay her an allowance – later the
mother agreed to provide a house for the daughter – the relationship became bad –
the mother claimed the house back – whether or not she could do so depending on
what license she had – was there a contract – based on the facts that the house was
given without intending into enter into legal relations – agreement was very vague –
that suggested no contract was intended
Ø There is no intention to create contract in social agreements
Ø Lens v Devonshire Club (1914) – the plaintiff was very good at golf – he won the
competition – golf club refused to give him the prize – no one in the competition
would expect any legal relations were to be formed – it was a social situation and
there is a presumption that there is no contract
Ø In commercial agreements there is a presumption that the parties intend to enter
into legal relations – therefore a contract – almost all contracts are commercial
agreements so hard to argue there is no intention to enter into legal relations
Ø There are situations where parties want to agree but don’t want any legal
enforcement over the terms
Ø Rose and Frank v JR Crompton (1923) – this was distribution agreement between a
paper manufacturer in Britain and paper retailer in USA – the clause stated that the
parties have not entered into a formal or legal agreement – the presumption is that
parties intend a contract – the Judge said there was no binding contract – due to the
clause – you need to look at the wording used – the intention of the parties
expressed here was that they don’t intend to be legally bound – judge did not see
any reason to not give effect to that intention – courts should not rewrite contract –
they were commercial parties legally advised and knew what they were doing with
that clause
Ø Kleinwort Benson LTD v Malaysia Mining (1923) – a comfort letter is used by
companies that talk about the financial position of one of the parties – worried
about whether you have the capital – which is a promise in which you are liable and
you will be able to finish the job – whether such an agreement was or was not a
contract – where there was a commercial transaction even by way of a comfort
letter there is a contract – COA accept that reasoning – but for other reasons that
the comfort letter was not a contract – there was no promise in the way the comfort
letter was drafted
Ø Winn v Bull (1877) – the parties were discussing a lease – the subject was made with
an intention to create a contract – was this binding when the landlord refused to
enter the lease – they said the lease wasn’t concluded – the tenant brought a claim –
the claim failed because they were at the stage before a contract – the agreement
they entered was expressly stated that it would be a contract – unless that contract
was concluded there was no contract
Ø Concorde Enterprises LTD v Anthony Motors (1981) – two commercial parties
entering into a written agreement – question was whether that was a final contract
– no clause in the agreement that stated that this was a final agreement and there
was no contract clause – prior to a formal agreement being drawn up and executed –
any agreement before that is not intended to have legal agreement
Ø It is flexible – it knocks out extreme cases where you don’t need to get into a
discussion on whether the contract is breached – either parties have made it clear
that there is no contract or something that is not the law’s business
Lecture 1 – Introduction
Ø Basic definition – an agreement between two or more parties involving one or more
promises that are given for something in return and that the parties intend to be
legally enforceable
Ø Beginning of the contract is the negotiation stage – what happens before a contract
is formed – the parties are talking with each other about terms
Ø Negotiations depend on the power balance – as consumers don’t have much
negotiation with the companies which usually provide a standard terms and
conditions – while companies that negotiate with each other
Ø Middle period – is the formation process – the terms of the contract – how is it to be
interpreted
Ø Most contracts are performed – some contracts are breached – for which law
provides compensation – to recover the loss to the party(ies) who suffered a loss
Ø Some contracts can be oral, but most are written – the sale of property must be in a
written contract to allow for certainty
Ø Parties must have an intention to create legal relations
Ø Contracts are an exchange – you are doing something for me, and I do something for
you – gratuitous exchanges are not considered contracts – key element is
consideration in NZ law
Ø Contract law doesn’t protect people from their own stupidity – for example if you
sell a luxury car for $10 the court cannot protect you
Lecture 2 – What are Contracts
Ø Bilateral contracts – almost all contracts are bilateral – they impose obligations on
both parties
Ø Unilateral contracts – only one party is undertaking an obligation – contract of
reward is one example – offering a reward of $1000 to anyone who completes a task
– one party is bound to pay the reward, but the other party is not bound to try and
receive the reward
Ø NZ contract law is largely derived from English contract law – key element is
decisions made by judges – the influence of English contract law had gradually
diminished after 1960s
Ø NZ statutes were made to rectify the common law – Contract and Commercial Law
Act 2017
Ø Law of restitution and law of tort regulate around contracts – restitution works on
the idea that where one person receives money or service from another even in the
absence of a contract in some situations they are required to give up the money or
pay for service – usually referred to as unjust enrichment – mistaken payment –
there are certain cases in which a contract is void, voidable or unenforceable
Ø Law of tort – tort law also covers cases of economic loss
Ø Hedley Byrne v Heller (1963) – one party asked for advice about their company – the
party gave that advice saying that the company was solvent – the advice was given
without payment meaning no consideration meaning no contract – despite there
, being no contract there was liability – the case was decided that there was liability –
this extended the scope of negligence
Ø This opens the floodgates argument as to where to draw the line for such cases –
there is also a problem as to why you can bring a case for something you don’t pay
for
Ø It is argued that contracts should operate under certain principles to allow for
consistency – however, they are interpreted differently by different judges and the
context of the contract is also important in deciding
Ø Parties breach a contract for reasons such as – the fulfilling the contract is no longer
beneficial to the party (especially in markets that a volatile), you are unable to
perform the contract (set price too low or natural disaster)
Ø To see if the parties have agreed you must look at their intentions – these can be
determined subjectively or objectively
Ø Subjectively agree – both parties agree on Term C within the contract – both agree
that Term C is part of the contract
Ø Subjectively Disagree – one party intends on Terms C with the other party and the
other agrees to Terms D – in this situation there is no contract
Ø Objective view – if the party has agreed on term C the other party cannot turn
around and say they intended something different
Lecture 3 – Objective sense of a Promise
Ø Denny v Hancock (1870) – the dispute here is about the size of the land being sold –
the purchaser was provided a plan by the seller and they inspect the land – they
believed they were buying the land up to the iron fence with the giant 3 trees –
however, the boundary was shown with some stumps that were hidden by shrubs –
they enter in a contract of sale – the purchaser realizes the land is smaller than they
believed – they refused to pay and complete the contract – vendor seeks specific
performance to complete the contract – specific performance was refused
Ø The question is whose interpretation is correct to a reasonable person – reasonable
person would be at the same view as the purchaser
Ø The buyer relied on the plan – the plan was giving the buyer the impression that it
was selling the bigger piece of land not the smaller piece of land
Ø Any reasonable person would believe that they were buying the bigger piece of land
Ø Specific performance was refused – only reason to order specific performance is if
the plans gave clear view that the small piece of land was being sold
Ø Tamplin v James (1878) – on an objective test – the agreement reflected the seller’s
intentions – contract was completed on the seller’s terms – the court ordered
specific performance
Ø In this case there was no attempt to mislead in the size of the land – the plans were
accurate – the purchaser thought the land was bigger than in the plan – the
reasonable person would assume the size of the land was as it would be in the plan
Ø In this case there was no attempt to mislead in the size of the land – the plans were
accurate and visible – it was the purchaser who got it into their head that the land
was bigger than intended
Ø Smith v Hughes (1871) – Blackburn says – If, whatever a man’s real intention may
be, he so conducts himself that a reasonable man would believe that he was
assenting to the terms proposed by the other party, and that other party upon that
, belief enters into a contract with him, the man thus conducting himself would be
equally bound as if he had intended to agree to the other party’s terms
Ø This suggests that no matter what the subjective view of the man they are agreeing
to the terms proposed by the other party
Ø However, there is also a 3rd stage in which the party needs to demonstrate that the
other party was agreeing to their terms – for example if a reasonable person
believes that the term is A and not term B – the party needs to also prove that they
intended term A and there was no misrepresentation which would lead the other
party to believe it was term B
Ø This stage helps to solidify the objective test – as sometimes a party can be misled
into believing they are agreeing to different terms
Ø Raffles v Wichelhaus (1864) – in this case a ship named the Peerless was travelling
from Bombay to Liverpool carrying cotton – the buyer refused to accept the
shipment in December as they expected to buy it in October – however, there were
two ships named Peerless travelling – one in October and one in December – due to
this ambiguity they contract was considered void as the terms were not clear and a
reasonable person would believe either party is correct – this is considered a mistake
– Doctrine of Mistake – parties have agreed but they have agreed on unstated
assumptions
Ø The party must prove that the reasonable person would reach the same conclusion
as their terms as well as the other party would reach the same conclusion as the
other party – there was no misrepresentation
Lecture 4 – Intention to create Legal relations
Ø There needs to be an intention to create legal relations between parties – the
agreement must be supported by consideration or a deed
Ø Statement is made in which there is no intention to create legal relations –
statement made not intended to be taken seriously – “Mere puff”
Ø Lambert v Lewis (1982) – manufacturer of the tow bar – stated that the tow bar was
full-proof and required no maintenance – plaintiff argued that these were contract
terms (contractual warranty) – tow bar had come lose and there was an accident –
these terms were breached and they could bring a case – HOL said they were not
intended to have legal effect
Ø Domestic agreements are not considered contracts as there is no intention to create
legal relations – note: law isn’t saying these cannot be contracts – there is a
presumption that domestic agreement is not intended to have legal force – this is a
presumption that you ca rebut – if the evidence show that the parties intended to
enter into a legally binding contract there is a contract – ultimately about what the
parties want
Ø Balfour v Balfour (1919) – a husband who worked in Sri Lanka would send money
back to England for his wife – he stops paying her – the wife seeks to enforce the
agreement – Justice Etkin said the agreement was outside the realm of contract – it’s
a presumption that no is intended
Ø Law presumes that when parties enter into a commercial relationship there is a
contract
Ø Jones v Padavatton (1969) – concerns a mother and daughter – mother lived in
England – daughter was a secretary in the USA – the mother said to the daughter if
, she came to England to read to the bar she would pay her an allowance – later the
mother agreed to provide a house for the daughter – the relationship became bad –
the mother claimed the house back – whether or not she could do so depending on
what license she had – was there a contract – based on the facts that the house was
given without intending into enter into legal relations – agreement was very vague –
that suggested no contract was intended
Ø There is no intention to create contract in social agreements
Ø Lens v Devonshire Club (1914) – the plaintiff was very good at golf – he won the
competition – golf club refused to give him the prize – no one in the competition
would expect any legal relations were to be formed – it was a social situation and
there is a presumption that there is no contract
Ø In commercial agreements there is a presumption that the parties intend to enter
into legal relations – therefore a contract – almost all contracts are commercial
agreements so hard to argue there is no intention to enter into legal relations
Ø There are situations where parties want to agree but don’t want any legal
enforcement over the terms
Ø Rose and Frank v JR Crompton (1923) – this was distribution agreement between a
paper manufacturer in Britain and paper retailer in USA – the clause stated that the
parties have not entered into a formal or legal agreement – the presumption is that
parties intend a contract – the Judge said there was no binding contract – due to the
clause – you need to look at the wording used – the intention of the parties
expressed here was that they don’t intend to be legally bound – judge did not see
any reason to not give effect to that intention – courts should not rewrite contract –
they were commercial parties legally advised and knew what they were doing with
that clause
Ø Kleinwort Benson LTD v Malaysia Mining (1923) – a comfort letter is used by
companies that talk about the financial position of one of the parties – worried
about whether you have the capital – which is a promise in which you are liable and
you will be able to finish the job – whether such an agreement was or was not a
contract – where there was a commercial transaction even by way of a comfort
letter there is a contract – COA accept that reasoning – but for other reasons that
the comfort letter was not a contract – there was no promise in the way the comfort
letter was drafted
Ø Winn v Bull (1877) – the parties were discussing a lease – the subject was made with
an intention to create a contract – was this binding when the landlord refused to
enter the lease – they said the lease wasn’t concluded – the tenant brought a claim –
the claim failed because they were at the stage before a contract – the agreement
they entered was expressly stated that it would be a contract – unless that contract
was concluded there was no contract
Ø Concorde Enterprises LTD v Anthony Motors (1981) – two commercial parties
entering into a written agreement – question was whether that was a final contract
– no clause in the agreement that stated that this was a final agreement and there
was no contract clause – prior to a formal agreement being drawn up and executed –
any agreement before that is not intended to have legal agreement
Ø It is flexible – it knocks out extreme cases where you don’t need to get into a
discussion on whether the contract is breached – either parties have made it clear
that there is no contract or something that is not the law’s business
