Question 1:

The original contract is valid, as Jimmy has accepted in full capacity by signing the
contract, irrespective of the fact that he did not read it as a signature on an unread
document still makes that document binding1. The key legal issue, however, is
whether Claudia’s promise to “double [Jimmy’s] pay” constitutes a new contract.
Here, the main legal question is whether Jimmy serving customers constitutes
consideration for a new contract, as performing existing legal duty does not
constitute consideration2, but performance above and beyond contractual duty3
does. In the contract Jimmy signed, an express term was that Jimmy would perform
“food preparation and other related duties”. Whether these related duties include
serving customers is discussed subsequently.

Prior to entry into the contract, Jimmy asked whether he’d be serving customers and
Claudia replied ‘I just need you to help out’. An important legal issue is whether the
parol evidence rule4 applies, where the court presumes that the writing forms a ‘full
and final statement’5 of intention and thus Jimmy must undertake ‘related duties’.

However, a collateral contract constitutes an exception to this rule6. The first

consideration here is whether the statement that Claudia required Jimmy to ‘help out’
‘was promissory and not merely representational’7. Jimmy neither requested for this
statement to be made part of the contract, nor did he seek a promise from Claudia –
he simply continued under the presumption that he would not be required to serve
customers. As Barwick C.J. notes in a similar case8, the second course of action
would ‘give rise to a collateral warranty’ but taking the third course of action makes
Claudia’s statement an innocent misrepresentation rather than a promise. Thus this
statement does not constitute conditional warranty and cannot be used as the basis
for a collateral contract.

1
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 165, 180.
2
Stilk v Myrick [1809] 170 ER 1168.
3
Hartley v Ponsonby [1857] 119 ER 1471.
4
Shogun Finance Ltd v Hudson [2004] 1 AC 919, 944.
5
Shogun Finance Ltd v Hudson [2004] 1 AC 919, 944.
6
De Lassalle v Guildford [1901] 2 KB 215, 222-223.
7
JJ Savage & Sons v Blakney [1970] 119 CLR 435, 442.
8
JJ Savage & Sons v Blakney [1970] 119 CLR 435, 442-443.

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Therefore in this case the parol evidence rule applies. However, a question arises as
to whether serving customers is a duty ‘related’ to food preparation. In interpreting
this contract, if the words used do not immediately make the meaning apparent they
should be considered by reference to what view a reasonable person in Jimmy’s
position would interpret those words to mean9. A reasonable person would likely
consider these two things unrelated, as matters related to food preparation will
involve actions correlating with the preparation of the food itself, and serving that
food seems another matter.

Thus whilst the parol evidence rule applies and the terms of the original contract
remain complete and unaltered, serving customers does not constitute a ‘related
duty’. Therefore, Jimmy was performing an action beyond existing duty, constituting
valid consideration for a new contract formed when Claudia promised to double his
pay, thus entitling Jimmy to receive this additional pay.

Question 2:

Once again, a valid contract was formed between Claudia and the student body
when Claudia signed that contract. This contract included the express term that the
prices of coffee beans ‘would be set from time to time’, suggesting the price change
contractually allowed. However, a potential collateral contract is present as Paige
clearly noted that the prices were set ‘for [Claudia’s] own benefit’ based on ‘the best
possible prices’ of the supplier.

A collateral contract has a number of requirements. First, the statement must be

‘promissory and not merely representational’10. In this case, the objective test of
intention applies whereby representations constitutes promises if they were
‘reasonably considered by the persons to whom they were made as intended to be
contractual promises’11. Paige has more knowledge about the supplier of the coffee
beans and their prices and it can thus be said that she ‘stated a fact that should be
within her own knowledge’12 in claiming that Claudia would receive the best possible
prices. A reasonable person in Claudia’s position would likely presume that Paige’s

9
Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732, 742.
10
JJ Savage & Sons v Blakney [1970] 119 CLR 435, 442.
11
Hospital Products Ltd v United States Surgical Corp [1984] 156 CLR 41, 61.
12
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623, 629.

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statement was intended to be a term and thus the statement is a contractual promise
rather than a representation.

Second, the promisee, Claudia, must have entered the original contract on the basis
of this promise13. In this case, Claudia clearly asked about the express term and only
entered the contract once Paige promised that the prices were ‘for [Claudia’s] own
benefit’. Thus it is clear that Claudia entered the original contract on the basis of
Paige’s promise.

Finally, the antecedent collateral contract must not be inconsistent with the principal
contract.14 The original contract has no stipulations regarding the basis of price
changes, so no conflict applies. Thus ultimately a collateral contract exists, where
Paige assured Claudia that prices were set based on the supplier to the benefit of
sellers.

The letter addressed to Claudia regarding the reason for a price change is due to no
change in supplier prices but due to a ‘budget shortfall caused by a decline in
Society membership’. This is a breach of the collateral contract whereby Claudia was
guaranteed the best supplier prices, and thus Claudia can claim damages.

Question 3:

Again in this cause Claudia and Manuela’s initial contract is valid as both parties
agreed and no issues arose. Manuela remarks that there was ‘nothing [in the original
contract]’ to say she couldn’t set up another franchise elsewhere. Thus it may be
assumed that there are no express terms written into the contract governing the
situation. However, there may be an implied term on the basis of business efficacy
regarding the establishment of other franchises. Terms implied on this basis face five
strict requirements15.

First, implying a term to prevent the theft of intellectual property is neither

unreasonable nor inequitable.

Second, the term must be necessary to give business efficacy to the contract – it
‘cannot be implied merely because the Court thinks it a reasonable term; it must be a

13
De Lassalle v Guildford [1901] 2 KB 215, 222.
14
Hoyts Pty Ltd v Spencer [1919] 27 CLR 133, 137.
15
BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] 180 CLR 266, 283.

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necessary implication’16. In this case, the contract was carried out irrespective of the
term being implied, and thus the term is arguably not a necessary requirement for
business efficacy. Nonetheless, had Claudia been aware that the term was missing
from the contract, she likely would not have undertaken the contract due to risks
regarding intellectual property. Thus this term can be seen as necessary to give the
contract business efficacy.

Third, the term must be obvious - had the parties been asked about the term whilst
negotiating, they would have responded ‘so and so will happen; we did not trouble to
say that; it is too clear’17. Had a third party brought up the possibility of Manuela
creating franchises away from the agreed-upon location, both Claudia and Manuela
would have agreed this was not a contractual intention, unless Manuela had
intended to exploit it from the start, in which case they would not commence the
contract. Thus it is reasonable to consider this an obvious term.

Fourth, the term must be capable of clear expression. In this case, the term would
read as follows: ‘The right to operate CFC outlets extends only to a single outlet
established at the University of Sydney’s Cumberland Campus’. Thus it is capable of
clear expression.

Finally, the term must not contradict any express term of the contract. By Manuela’s
own admission, no term in the contract explicitly governed creation of franchises
anywhere other than on the Cumberland Campus, and thus no contradiction is
apparent.

An emerging legal issue is the notion of an implied term on the basis of good faith18.
This encompasses three aspects19; good faith in ‘achieving contractual objects’,
which Manuela has complied with, good faith in ‘compliance with honest standards of
conduct’, which Manuela has not shown as copyright infringement does not
constitute honest conduct, and good faith in ‘standards… which are reasonable
having regard to the interests of the parties’, which Manuela has also breached by

16
Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 597.
17
Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 605.
18
Alcatel Australia Ltd v Scarcella [1998] 44 NSWLR 349, 369.
19
Alcatel Australia Ltd v Scarcella [1998] 44 NSWLR 349, 367.

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creating unwanted competition for Claudia. Thus, a term may also be implied on the
basis of good faith.

Finally, promissory estoppel may apply in this case, whereby Manuela’s exploitation
constitutes an ‘unjust departure… from an assumption’, that assumption being that
the contract did not allow creation of franchises elsewhere, that operated to
Claudia’s detriment20. Here, promissory estoppel applies as the party who has
departed from assumption, Manuela, has ‘refrained from correcting’ Claudia when it
was her ‘duty to do so’21. It is clear that Manuela realised the mistake Claudia had
made, as she ‘read the contract carefully’ and undertook an action which exploited
that assumption without correcting Claudia. It is also clear that as a result, Claudia
has been placed ‘in a position of material disadvantage’22, having lost customers and
sales. Thus promissory estoppel applies to prevent MCM’s creation.

Thus an implied term of the original contract, via business efficacy or good faith, was
that Manuela was only entitled to create a new franchise on the Cumberland
Campus. Manuela has breached this term. Applying the test of essentiality23, Claudia
would not have entered into the contract had she known Manuela could set up
competing franchises and thus this is a condition not a warranty, enabling Claudia to
claim damages and choose to terminate the original contract.

Question 4:

Claudia’s actions are a clear breach of the express term in Clause 84(a)(3) – food
vendors ‘must use only Scadente brand coffee beans’. However, a contract can only
be terminated in the case of breach of a condition, whereby ‘the injured party can
elect to terminate and claim damages’24. Here, the test of essentiality25 applies again
in determining the classification of the express term. Paige specifically noted during
negotiation that the clause was ‘quite important’ and when Claudia asked if she
could change that term, Paige ‘firmly’ said no. Paige’s insistence appears to imply an
unwillingness to accept contractual obligation in lieu of that specific term, and thus it

20
Thompson v Palmer [1933] 49 CLR 507, 547.
21
Thompson v Palmer [1933] 49 CLR 507, 547.
22
Thompson v Palmer [1933] 49 CLR 507, 547.
23
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd [1938] 38 SR (NSW) 632, 641-2.
24
Lombard North Central Plc v Butterworth [1987] QB 527, 535.
25
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd [1938] 38 SR (NSW) 632, 641-2.

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appears that the term is considered a condition in this case. Therefore, the student
society is within their legal rights to terminate the contract with Claudia following her
breach of contract.

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Bibliography

Alcatel Australia Ltd v Scarcella [1998] 44 NSWLR 349

BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] 180 CLR 266

De Lassalle v Guildford [1901] 2 KB 215

Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623

Hartley v Ponsonby [1857] 119 ER 1471

Hospital Products Ltd v United States Surgical Corp [1984] 156 CLR 41

Hoyts Pty Ltd v Spencer [1919] 27 CLR 133

JJ Savage & Sons v Blakney [1970] 119 CLR 435

Lombard North Central Plc v Butterworth [1987] QB 527

Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592

Shogun Finance Ltd v Hudson [2004] 1 AC 919

Stilk v Myrick [1809] 170 ER 1168

Thompson v Palmer [1933] 49 CLR 507

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 165

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd [1938] 38 SR (NSW) 632