Contract Law Notes
Contract Law Notes
Contracts ‘A’
Contracts ‘A’
Offer
Offer
-- BBiillaatteeraral l ccononttraraccttss -- UUninillaatteerral al ccononttrracacttss
-- OfOffefers rs to to ththe pe pubublilic ac at lt larargege What is an offer?
What is an offer? -- MMeerre e ppuufff f
-- SSupupplply oy of if infnforormmaatitioonn -- IInnvviittaattiioon tn to to trreeaatt Categorizing transactions Categorizing transactions
-- AAddvveerrttiisseemmeennttss a)
a) AdveAdvertisrtisemeements in a nts in a catcatalogalogue or a cue or a curriurriculacular r b)
b) AdveAdvertisrtisemeements in nents in newspwspaperapers or mags or magazinazineses c)
c) AdveAdvertisrtisemeements ants appeappearing ring on thon the inte interneernett d)
d) DiDispsplalay y of of gogoododss -- AAuuccttiioonnss
aa)) AAddvveerrttiisseemmeennt t oof f aauuccttiioonn b
b)) AAuuccttiioonns s wwiitth h rreesseerrvveess cc)) AAuuccttiioonns ws wiitthhoouut t a a rreesseerrvvee -- TTeennddeerriinngg
-- SSttaannddiinng og offffeerrss
OptionsOptions Communication of an offer Communication of an offer Termination of an offer Termination of an offer
-- An An ofoffefer mr may ay be be tetermrmininatated ed byby
aa)) RReevvooccaattiioon n bby y tthhe e ooffffeerroor r b
b)) RReejjeecctteed d bby y tthhe e ooffffeerreeee cc)) LLaappsse e oof f ttiimmee
d)
d) FFaaiillurure oe of a f a cconondidittiioon sn suubjbjeecct tt to wo whhiicch th thehe offer was made
offer was made ee)) DDeeaatthh
Acceptance
Acceptance
Requirements of acceptance Requirements of acceptance
Acceptance must correspond to offer Acceptance must correspond to offer
-- OffOffereree mee must ust hahave knve knowowleledge odge of anf and acd act in rt in releliaiance tnce to ano an offer offer Page 9 Page 9 Page 9 Page 9 Page 10 Page 10 Page 12 Page 12 Page 13 Page 13 Page 14 Page 14 Page14 Page14 Page14 Page14
-- A cA couountnter er ofoffefer ir is ns not ot acacceceptptanancece -- AcAcceceptptanance ce mumust st be be ununququalalififieiedd
-- MerMere ee enqunquiriry dy does oes not not conconstistitutute ate accccepteptancancee Notification to the offerer of the fact of acceptance Notification to the offerer of the fact of acceptance
-- MMetethhod od oof f aaccceceppttananccee
aa)) MMeetthohod od of af accccepepttaancnce se sttiipupullaatteed bd by y ofofffeer r b
b)) AAcccceeppttaanncce be by y ssiilleennccee cc)) AAcccceeppttaanncce e bby y ccoonndduucctt
-- InsInstatantntaneaneous cous comommumuninicatcationion: Acc: Accepteptanance muce must best be communicated
communicated
aa)) GGeenneerraal l rruullee b)
b) MMeeananiing ong of if insnsttaantntaaneneoous cus comommmuunniicacatitioonn -- PPososttaal al accceceppttaancnce re ruullee
aa)) SSttaatteemmeennt t oof f tthhe e rruullee b
b)) PPoolliiccy y bbeehhiinnd d tthhe e rruullee
cc)) TTo wo whhaat ct coommmmuunniiccaattiioon dn dooees ts thhe re ruullee extend
extend d
d)) WWhheerre e iis ts thhe re ruulle e ddiissppllaacceedd
ee)) RReevvococaattiion on oof af accceceppttanancce pe prriior or tto ro receceeiiptpt Acceptance in unilateral contracts
Acceptance in unilateral contracts
-- AcAcceceptptanance ce cocommmmononly ly by by cocondnducuctt
-- WiWithdthdrarawal owal of an off an offefer aftr after acer accepceptatance hnce has coas commmmencenceded Who may accept an offer?
Who may accept an offer?
Contract formation: time and place Contract formation: time and place
-- InInststanantataneneouous s cocommmmununicicatatioionn -- PPoosstt
Certainty and Completeness
Certainty and Completeness
Statement of the rule Statement of the rule
-- FFaaccetets ts to to the he prpriinncicippaall Ambiguity and uncertainties Ambiguity and uncertainties
-- IInnddiivviidduuaal l tteerrmmss
-- AgAgrereememenents ts to to nenegogotitiatatee
Saving ambiguous, uncertain or meaningless terms Saving ambiguous, uncertain or meaningless terms
-- LiLink nk to to exexteternrnal al ststanandadardrd
-- LiLink nk to to rereasasononabableleneness ss ststanandadardrd -- SSeevveerraannccee
-- WaWaiviver er or or reremomovaval ol of f cecertrtaiaintntyy Incomplete agreement
Incomplete agreement
-- AgrAgreeeemement nt concontatains ins memechchanianism tsm to co comomplpleteete aa)) RReeffeerreenncce e tto o a a tthhiirrd d ppaarrttyy b
b)) DiDiscscreretition on reretatainined ed by by cocontntraractctining g papartrtyy
-- BBrree akd akd own own of of mec mec hani hani sm sm to to com com plet plet ee Page 16 Page 16 Page 18 Page 18 Page 18 Page 18 Page 19 Page 19 Page 19 Page 19 Page 20 Page 20 Page 20 Page 20
-- A cA couountnter er ofoffefer ir is ns not ot acacceceptptanancece -- AcAcceceptptanance ce mumust st be be ununququalalififieiedd
-- MerMere ee enqunquiriry dy does oes not not conconstistitutute ate accccepteptancancee Notification to the offerer of the fact of acceptance Notification to the offerer of the fact of acceptance
-- MMetethhod od oof f aaccceceppttananccee
aa)) MMeetthohod od of af accccepepttaancnce se sttiipupullaatteed bd by y ofofffeer r b
b)) AAcccceeppttaanncce be by y ssiilleennccee cc)) AAcccceeppttaanncce e bby y ccoonndduucctt
-- InsInstatantntaneaneous cous comommumuninicatcationion: Acc: Accepteptanance muce must best be communicated
communicated
aa)) GGeenneerraal l rruullee b)
b) MMeeananiing ong of if insnsttaantntaaneneoous cus comommmuunniicacatitioonn -- PPososttaal al accceceppttaancnce re ruullee
aa)) SSttaatteemmeennt t oof f tthhe e rruullee b
b)) PPoolliiccy y bbeehhiinnd d tthhe e rruullee
cc)) TTo wo whhaat ct coommmmuunniiccaattiioon dn dooees ts thhe re ruullee extend
extend d
d)) WWhheerre e iis ts thhe re ruulle e ddiissppllaacceedd
ee)) RReevvococaattiion on oof af accceceppttanancce pe prriior or tto ro receceeiiptpt Acceptance in unilateral contracts
Acceptance in unilateral contracts
-- AcAcceceptptanance ce cocommmmononly ly by by cocondnducuctt
-- WiWithdthdrarawal owal of an off an offefer aftr after acer accepceptatance hnce has coas commmmencenceded Who may accept an offer?
Who may accept an offer?
Contract formation: time and place Contract formation: time and place
-- InInststanantataneneouous s cocommmmununicicatatioionn -- PPoosstt
Certainty and Completeness
Certainty and Completeness
Statement of the rule Statement of the rule
-- FFaaccetets ts to to the he prpriinncicippaall Ambiguity and uncertainties Ambiguity and uncertainties
-- IInnddiivviidduuaal l tteerrmmss
-- AgAgrereememenents ts to to nenegogotitiatatee
Saving ambiguous, uncertain or meaningless terms Saving ambiguous, uncertain or meaningless terms
-- LiLink nk to to exexteternrnal al ststanandadardrd
-- LiLink nk to to rereasasononabableleneness ss ststanandadardrd -- SSeevveerraannccee
-- WaWaiviver er or or reremomovaval ol of f cecertrtaiaintntyy Incomplete agreement
Incomplete agreement
-- AgrAgreeeemement nt concontatains ins memechchanianism tsm to co comomplpleteete aa)) RReeffeerreenncce e tto o a a tthhiirrd d ppaarrttyy b
b)) DiDiscscreretition on reretatainined ed by by cocontntraractctining g papartrtyy
-- BBrree akd akd own own of of mec mec hani hani sm sm to to com com plet plet ee Page 16 Page 16 Page 18 Page 18 Page 18 Page 18 Page 19 Page 19 Page 19 Page 19 Page 20 Page 20 Page 20 Page 20
Page 21 Page 21
Page 22 Page 22
Saving incomplete agreements Saving incomplete agreements -- InInccomomplpleetitioon on of tf teerrmmss -- FaFaililurure te to so spepecicify fy a pa priricece
aa)) CCoonnttrraacct st siilleennt ot on n pprriiccee b
b)) CoContntraract ct prprovovidides es fofor r papartrtieies ts to o agagreree ie in n ththee future
future
cc)) CCoontntrraacct mt makake pe prrovoviisisionons fs foor mr meecchahanniism sm ttoo complete
complete d
d)) CCoonnttrraacct pt prroovviiddees fs foor r ppaayymmeennt t oof f aa reasonable price
reasonable price -- SSububjjeecct tt to ao agrgreeeemmeennttss
Subject to finance agreementsSubject to finance agreements aa)) SSaattiissffaaccttoorry y ffiinnaannccee b
b)) SStteepps ts to bo be te taakkeen tn to oo obbttaaiin fn fiinnaannccee
Subject to contractSubject to contract
Intention to create legal relations
Intention to create legal relations
Statement of rule Statement of rule
Domestic and social relationships Domestic and social relationships
-- PPrreessuummppttiioonn
-- ReRebubuttttining tg the he prpresesumumptptioionn
aa)) HHuussbbaannd d aannd d wwiiffee b
b)) SSeeppaarraatteed d hhuussbbaannd d aannd d wwiiffee cc)) OOtthheer r ffaammiilly y rreellaattiioonnsshhiippss d
d)) SSoocciiaal l rreellaattiioonnsshhiippss Commercial agreement
Commercial agreement -- PPrreessuummppttiioonn
-- ReRebubuttttining tg the he prpresesumumptptioionn Government activities
Government activities
-- CCoommmmerercciaial agl agrereeemmenenttss -- PPololiiccy y iinniittiiaatitivevess
Voluntary associations Voluntary associations Circumstan Circumstan ces ces indicating indicating absence of absence of intent intent -- HHoonn our our clau clau se se -- PPrroo moti moti onal onal puff puff and and free free gifts gifts -- ExEx grati grati aa pay pay men men ts ts and and with with out out prej prej udic udic ee offe offe rs rs -- LLeetttt er er of of com com fort fort -- LLeetttt er er of of inte inte nt nt and and und und erst erst andi andi ng ng
Consider
Consider
ation
ation
Nature of consideration
- Consideration in bilateral contracts Page 23 Page 27 Page 27 Page 27 Page 29 Page 30 Page 30 Page 30 Page 32 Page 32 - Con side ratio n in unil ater al cont ract s - Exe cute d and exec utor y cons ider atio n Rules governing considerati on - Con side ratio n mus t mov e fro m the pro mis ee
a) Benefit need not move to the promisor b) Joint promises
c) Overlap with Doctrine of privity - Consideration must be bargained for
- Consideration must be sufficient a) General principal
b) Consideration need not be adequate c) Consideration can be nominal - Consideration must not be past
a) General principal
b) Past consideration distinguished from executed consideration
Consideration and formal agreements - Deeds
Consideration: specific examples - Moral consideration
- Performance of existing duties
a) Performance of existing contractual duties b) Performance of a public duty
c) Where promise is made to a third party - Payment of a debt
a) Rule in Pinnel’s case
b) Circumstances in which the rule will not operate
• Parties enter into a deed
• Accommodation to benefit the creditor
• Amount owing is disputed • Payment by a third party • Composition with creditors - Forbearance to sue
- Bargain for conduct already performed
Equitable Estoppel
Elements of estoppel - Assumption of expectation - Encouraged or induced - Reliance - Knowledge or intention - Detriment- Failure to avoid detriment Remedies Page 33 Page 35 Page 35 Page 38 Page 39 Page 41
Privity
General rule
Statutory abrogation of rights - Queensland a) Promisor b) Beneficiary c) Promise d) Acceptance e) Defences
f) Variation and rescission of promise g) Imposition of burdens
h) Common law still applicable - Commonwealth
- Insurance Contracts Act 1984 (Cth) s 48
Entitlement of a named person to claim
- Maritime contracts of carriage
a) Servants or agents of sea carriers b) Consignees and endorsees
So called exemption at common law - Agency
Definition
Exemption clauses and third parties
Trusts
Unjust enrichment
Formalities
Guarantees
- Nature of guarantees
- Transaction which are not guarantees a) Contracts of indemnity
b) Promise of guarantee made to the debtor c) Person agrees to take over the debt of another
d) The agreement imposes no personal liability on the person
e) Letters of comfort - Requirements of writing: content
a) Information particular to the guarantee b) Acknowledgement of the agreement
- Requirements of writing: signed by party to be charged or agent
Contracts relating to land
- Nat ure of cont ract nee ding writ ing - Req uire men ts of writ ing: cont ent Page 42 Page 42 Page 42 Page 45 Page 47 Page 47
Page 50
a) Information particular to the guarantee b) Acknowledgement of the agreement
- Requirements of writing: signed by party to be charged or agent
Joinder of document
- Reference to a document
a) Documents that are physically connected b) Documents that are executed at the same time
- Reference to a transaction
Effect of statutory non-compliance: common law - Contract valid to pass title
- Recovery of money paid under unenforceable contract a) Recovery of deposit
b) Recovery of amount more than deposit - Other restitutionary claim may still be available
Effect of statutory non-compliance: equity - Doctrine of part performance
a) Acts are unequivocally referable to some such contract
b) Acts done in reliance on the agreement and with knowledge of the other party
c) Acts done by the party seeking to enforce the contract
d) Oral contract must be otherwise enforceable - Estoppel - Constructive trust
Establish
ing
contr
actua
l
terms
Incorporati on by signature a) Gen eral rule b) Wh en the rule is disp lace d Incorporati on by notice: unsigned document a) Rea sona ble step s take n by the defe nda ntb) Reasonable steps must be taken on or before contract formation
Incorporation by notice: signs
c) Reasonable steps taken by the defendant
d) Reasonable steps must be taken on or before contract formation
Incorporation of notice: website Incorporation by reference Page 52 Page 53 Page 55 Page 56 Page 56 Page 57 Page 58 Page 59 Page 59 Incorporati ng oral terms - Mer e puff - Rep rese ntati on or term a) W ord s or co nd uct of par tie s
b) Knowledge and expertise of statement maker
c) Statement maker has control in relation to information
d) Oral statement not reduced to writing e) Interval of time
- Collateral contracts
a) Nature of a collateral contract
b) Bipartite and tripartite collateral contracts c) Consistency with the main contract
Parole evidence rule
- Statement of the rule - When the rule applies - Exceptions of the rule
a) Evidence of a collateral contract
b) Evidence that the written contract is not yet in force
c) Evidence that the written contract was later varied or changed
d) Evidence to imply a term
e) Evidence necessary for rectification Implied terms
- Terms implied to give effect to the presumed intention of the parties
a) Term implied on the basis of business efficiency
b) Term implied from previous consistent course of dealings
c) Term implied from custom or usage d) Term implied to complete an agreement - Terms implied irrespective of parties intentions
e) Term implied as a legal incident of a particular class of contract
f) General duty of co-operation
g) Implication of duties of good faith, fair dealings and reasonableness
h) Term Implied by statute
Construction of terms
Interpreting the meaning of terms - General approach
- Admissible evidence
a) The parole evidence rule b) Factual matrix Page 59 Page 61 Page 62 Page 66 Page 66
c) Exceptions to the parole evidence rule
Ambiguity
Identification of subject matter
Identification of parties and their relationship
Identification of the real consideration Custom or usage Rectification - Inadmissible evidence a) Subjective intention b) Prior negotiation c) Subsequent conduct Legal effect of words: types and terms
- Promissory terms
a) Conditions
The statutory position b) Warranties
The statutory position c) Intermediate or innominate terms Contingencies
- Conditions precedent - Conditions subsequent Exemption clauses
- Specific rules of construction
a) The contra proferentem rule b) Attempts to exempt negligence
The rules regarding attempts to exempt negligence
c) The four corners rule
Page 69
Page 72
Page 73
Contract Law Exam Notes
Offer
:
An offer is an expression to another of a willingness to be bound by the stated terms
Bilateral Contracts
Under Bilateral Contracts each party undertakes to the other party to do or to refrain from doing something, and in the event of his/her failure to preform his/her
undertaking, the law provides the other party with a remedy.
United Dominions Trust Ltd v Eagle Aircraft Services Ltd
Unilateral Contracts
Under unilateral contracts the promisor undertakes to do or to refrain from doing something if another party, the promisee, does or refrains from doing something, but the promisee does not at the time of the offer undertake to do or to refrain from doing that thing.
United Dominions Trust Ltd v Eagle Aircraft Services Ltd
The position in such cases is simply that the consideration on the part of the offeree on the part of the offeree is completely executed by the doing of the very thing that constitutes acceptance of the offer.
Australian Woollen Mills Pty Ltd v The Commonwealth
Offers to the Public at Large
An offer can be made to the public at large.
Carlill v Carbollic Smoke Ball Company
What is not an Offer?
Mere Puff
Sometimes statements can be regarded only as ‘mere puffery’- the claims are made only for advertising purposes and mean nothing.
Carlill v Carbollic Smoke Ball Company
Supply of Information
The supply of information is not an offer.
A request for information must be discerned from a contractual offer. A clearer indication of a preparedness to enter into a contract, than merely providing terms or information upon which a party maybe prepared to enter into such a contract, is needed.
Invitation to Treat
An invitation to treat is an indicator of a parties willingness to negotiate entry into a contract. It is a technique used by a party who desire another party to make an offer and cannot be construed or the terms be accepted as if it were a valid legal offer in itself.
Carlill v Carbollic Smoke Ball Company
The display of goods in a store is an invitation to treat.
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd
An advertisement that gives information about goods for sale and their price will generally be an invitation to treat rather than an offer.
Partridge v Crittenden
Categorizing Transactions
Advertisements
Most advertisements are considered invitations to treat but some may be regarded as offers depending on language used in the advertisement and other relevant factors.
a) Advertisements in a catalogue or in a curricular.
Circulars, which provide information about items for sale and their prices, are
regarded as invitations to treat. If it were regarded as an offer and the manufacturer ran out of stock, they would be in breach of contract for anyone who accepted such an offer as they could not provide stock
Grainger v Gough
b) Advertisements in Newspapers and Magazines .
These are also considered invitations to treat unless the advertisement is couched in terms which indicate the retailers willingness to be bound if the specified terms are accepted (eg. there is a promise (Carlill) rather than a mere invitation ( Partridge v Crittenden).
c) Advertisements appearing on the Internet.
The application of the same principle as newspapers and magazines is used. d) Display of Goods.
Items appearing in retail outlets, even if the price is attached, are regarded as an invitation to treat.
Pharmaceutical Society of Great Britain v Boots Cash Chemists.
Auctions
a) Advertisement of Auctions
The advertisement of an auction is considered an invitation to treat on the part of the auctioneer. The auctioneer may withdraw items from the auction or cancel the auction all together without incurring any liability from potential bidders.
Harris v Nickerson
The auctioneer may withdraw various lots from the auction or cancel the auction altogether without incurring any liability from potential bidders.
Harris v Nickerson
b) Auctions with Reserve
Each bid represents an offer, which the auctioneer may reject or accept. Acceptance of an offer occurs, and an agreement is formed, when the auctioneer knocks down the property to the successful bidder.
Because the agreement is not formed until the bid is knocked down, the bidder can withdraw a bid (offer) before this time.
Payne v Cave
c) Auction without a Reserve
Even in an auction without a reserve, each bid represents an offer that could be accepted or rejected by the auctioneer.
AGC Ltd v. McWhirter
Tendering
An advertisement for tenders will generally be the same as an advertisement for an auction, which is akin to an invitation to treat. Therefore no liability will be incurred if the person does not accept any of the tenders or even consider them in a bona fide way. Each tender will be considered an offer, which can be accepted or rejected.
Spencer v. Harding
A standing offer is an indication by one party of his/her willingness to provide goods over a specified period of time.
A standing offer is accepted every time an order is placed. If the goods are not delivered or are refused the offending party will be in breach of contract.
Great Northern Railway Co v. Witham
An offeror may withdraw the offer, anytime, before acceptance of the offer is made in the form of an order.
Further, unless the parties agree to the contrary, there is no obligation of the offeree to order goods only through the offeror, (eg. the offeree may choose not to accept the standing offer)
Colonial Ammunition Co v Reid
Options
The standing offer may be revoked at anytime before acceptance by the offeree. However, if the offeree provides consideration (eg paying money) to the offeror to keep the offer open for some period, the offer cannot be withdrawn during this period.
Routledge v Grant
Communication of an Offer
For an offer to be valid it must be communicated to the offeree by the offeror, or someone authorised by the offeror.
Cole v Cottingham
An offer becomes effective once it is communicated to the offeree
Taylor vLaird
Acceptance must take place in reliance upon an offer. If the offeree performs a particular act that corresponds to the terms of the offer without knowledge of the
offer, there is no agreement, and no contract comes into existence.
Tinn v Hoffman & Co
If it is an offer to the world at large, the offer could be accepted by any fulfilling the requirements of the offer.
Carlill v Carbolic Smoke Company
An offer may be terminated at any time before it is accepted. However, once an offer is accepted it becomes irrevocable.
Goldsbrough Mort & Co Ltd v Quinn
An offer may be terminated by
a) Revocation by the offeror
Revocation is the formal withdrawal of the offer by the offeror. Before acceptance, an offer can be freely revoked
Goldsbrough Mort & Co v Quinn Veivers v Cordingly
Unless there is a promise, supported by consideration or under seal, by the offeror to keep it open for a fixed period.
Routledge v Grant
A revocation will only be effective once it has been communicated to and received by the offeree
Bryrne v Leon Van Tien Hoven
In unilateral contracts, the offer cannot be withdrawn after the offeree has begun to perform the necessary conditions of acceptance of the offer and completion of the
contract.
Abbot v Lance
b) Rejected by the offeree
The rejection must be communicated to the offeror before it is effective. Once
rejected, an offer cannot be later accepted. If an offeree attempts to accept the offer but introduces new terms, the offeree is rejected the offer and is deemed to be making
a counter offer
Stevenson Jaques & Co v McLean
c) Lapse of time
An offeror may stipulate that his or her offer must be accepted within a certain period of time, and if the offeree fails to accept, the offer will lapse. If no time is prescribed, the offer must be accepted within a reasonable time.
Ramsgate Victoria Hotel Co v Montefiore
If a condition upon which the offer is made is not fulfilled the offer will lapse
McCaul Pty Ltd v Pitt Club Ltd
e) Death
If the offeror dies and the offeree has not been notified of that death, it is still possible for the offeree to accept the offer, thus binding the offeror’s estate. If the offeree has been notified of the death he/she cannot accept the offer.
Coulthart v Clementson
Nor can a representative of the offerors estate accept the offer on their behalf therefore the offer lapses
Reynolds v Atherton
Acceptance
:
Requirements of Acceptance
Acceptance of an offer is the expression, by words or conduct, of assent to the terms of the offer in the manner prescribed or indicated by the offer. Thus acceptance may be expressed or implied
HBF Dalgety v Morton
There are two requirements to satisfy for valid acceptance to occur: 1. The offeree must agree to accept the terms of the offer
2. This information must be communicated to the offeror.
Acceptance must correspond to Offer
Offeree must have knowledge of and act in reliance to an offer
The offeree must have knowledge of the terms of the offer at the time of purported acceptance. Acceptance is not valid if two identical offers are made or if a party performs the act of acceptance without knowledge of the offer.
Tinn v Hoffman
If a counter offer is made, the original offer is rejected and the counter offer can then itself be accepted or rejected. Once a counter offer is made and the original offer rejected, the offeree can no longer accept the original offer
Hyde v. Wrench
A purported acceptance that departs from the terms of the offer but only in a minor non-material way may be effective and not amount to a counter offer
Turner Kempson v Camm
Acceptance must be Unqualified
If there is an agreement on all terms of the offer, and the parties intend to be bound immediately, this would be considered unqualified acceptance of the offer.
Masters v Cameron
Mere Inquiry does not Constitute Acceptance
After receiving an offer, an offeree may want further clarification of one or more terms. This inquiry can at most, only communicate interest but not acceptance nor rejection of an offer.
Stevenson Jaques v McLean
Notification to the Offeror of the Fact of Acceptance
The offeree must communicate acceptance of the offer to the offeror and agreement is not complete until such communication is affected.
Powell v Lee Soares v Simpson
Method of Acceptance
What is an appropriate method of acceptance in any given situation will depend on each situation, whether the offeror has outlined a specified method of acceptance with in the offer, or if it is not stipulated, the appropriate method of acceptance will depend on the intention of the parties as derived from the particular facts. Whether
acceptance has occurred depends on whether the offeree has complied with the requirements for the method of acceptance for the particular situation.
a) Method of Acceptance Stipulated by Offeror
The offeror may stipulate how acceptance should take place (eg. the performance of an act, return post etc.). If acceptance does not occur in this way, generally there is no agreement.
Although, if the offeree accepts in a manner that is more advantageous for the offeror, then the acceptance will be valid
Tinn v Hoffman
Also, if the method of acceptance was inserted for the convenience of the offeree, the offeree may wave the benefit of the clause and accept in a different way
Or even if a manner of acceptance is prescribed in the offer, on the true construction of the terms in the offer, this may not be the only method of acceptance that will be effective
Manchester Diocesan Council for Education v Commercial & General Investments Ltd
b) Acceptance by Silence
The offeror cannot stipulate silence to constitute consent under any circumstances.
Felthouse v Bindley
Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Lty Braund v Mutual Life & Citizens’ Assurance Co Ltd
The technique of delivering a product with a notice stating that unless the goods are returned within a stated period (or rejection communicated in a different way), the buyer will be taken to have agreed to buy the product on the stated terms is now prohibited by statute.
Trade Practices Act 1974 (cth) s. 64 & s.65 Fair Trading Act 1989 (qld) s.52 & s.53
c) Acceptance by Conduct
An offeror may stipulate the manner of acceptance by advising the offeree that if he/she wishes to accept the offer, the offeree should perform stipulated acts waiving the need to communicate acceptance. Acceptance can be express or implied.
Brogden v The Director of the Metropolitan Railway Company Carlill’s case
Instantaneous Communication: Acceptance must be communicated
a) General Rule
When the mode of acceptance is instantaneous communication, the general rule of law is that the contract will be formed when acceptance of the offer is communicated to the offeror and that communication is received.
Entores L D v Miles Far East Corporation
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-Gesellshaft mbH
b) Meaning of instantaneous Communication
Face to face communication, telephone conversations and telex messages are all considered forms of instantaneous communication.
Entores L D v Miles Far East Corporation
Reese Bros Plastics Ltd v Hammon-Sabelco Australia Pty Ltd
Postal Acceptance Rule
The postal acceptance rule is the exception to the general rule that acceptance occurs when it is communicated to the offeror.
a) Statement of the rule
Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is completed as soon as it is posted.
Henthorn v Fraser
The rule operates only where the post is an acceptable method of communication between the two parties (eg. the offer was made by post or it is stipulated in the offer
that the post is an acceptable method of communication)
Adams v Lindsell
b) Policy behind the rule
The postal rule promotes contractual certainty. c) To what communication does the rule extend
The postal acceptance rule applies to forms of communication that are akin to mail but does not extend to any form of instantaneous communication, even if that
communication bears some similarities to communication by post.
Coot Pty Ltd v Admin Management Pty Ltd
d) Where is the rule displaced?
The rule is displaced if the court decides that it was not within the contemplation of the parties that the post was an accepted method of communication. Whether the postal rule is displaced turns the intention of the offeror. If the offeror says or implies
that actual notification is required before an agreement if formed the postal acceptance rule will be displaced.
Bressan v Squires
e) Revocation of the acceptance prior to receipt
The offer is formed when the letter of acceptance is posted. A subsequent purported withdrawal of that acceptance will be ineffective.
There is still no definitive Australian authority on the issue, only early New Zealand dicta that’s suggests that it cannot be withdrawn in this way and an even earlier Scottish authority to suggest that it can!!
Weinkheim v Arndt (NZ)
Dunmore (Countess) v Alexander (Scottish)
Acceptance in Unilateral Contracts
Acceptance commonly by conduct
The requirement for acceptance to be communicated is often impliedly waived. Acceptance is affected by the offeree by performing the requirements that are specified by the offeror.
Carlill v Carbollic Smoke Ball Company
Withdrawal of an offer after acceptance has commenced
Generally, once an offeree has begun to accept the offer by performing the acts stipulated, it is likely to be too late for the offeror to withdraw the offer and claim there has been no contract formation.
Abbot v Lance
Who may accept an offer?
An offer can only be accepted by the person to whom it was made.
Reynolds v Atherton
Acceptance may be communicated only by the offeree or his or her agent
Powell v Lee
If an offer is made to the public at large it can sometimes be accepted by a number of people. InCarlill’s Case the offer was capable of acceptance by anyone who
qualified under the terms of their offer (eg. anyone who purchased a smoke ball, however, in the case of a reward, while many people may have the information which qualifies them for the reward, only the first person to come forth will be eligible).
Carlill’s case
Contract formation: time and place
Instantaneous communication
A contract is formed when and where the offeror receives and accepts the acceptance communicated.
Hampstead Meats Pty Ltd v Emerson & Yates Pty Lty Entores L D v Miles Far East Corporation
Post
If the postal acceptance rule applies, the contract is formed when, and at the place that, the letter of acceptance is posted.
Henthorn v Fraser
The Postal Rule can be excluded {Covered earlier in “The postal Acceptance Rule” at (d)}
Holwell Securities Ltd v Hughes Bressan v Squires
Certainty and Completeness
:
Concepts of uncertainty or vagueness are relevant to a determination of whether there has been an offer made which is capable of acceptance, and whether the parties could have had the requisite intention to enter into legal relations. If an offer is so vague that the respective obligations of the parties on acceptance are unclear, it is unlikely to be a valid offer in legal terms. Similarly, if the terms of the offer are vague and uncertain, it may indicate that the parties lack intention, not having yet reached the stage of negotiations at which each intends to be legally bound to the other party.
Statement of the Rule
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 that unless this can be done it would be impossible to hold that the contracting parties had the same intentions; in other words the consensus ad idem would be a matter of mere conjecture
Facets to the principal
There are a number of facets to this principle:
• A contract containing language that is 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 will be unenforceable The uncertainty may relate to one of the pivotal terms of the agreement or may go to the very heart of the agreement.
G Scammell and Nephew v HC & JG Ouston
• Even where uncertain or ambiguous language is not used, if the parties have not agreed on all of the essential terms of the agreement, the contract will be unenforceable.
Loftus v Roberts
• A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations
Thorby v Goldberg
Ambiguity and Uncertainty
Individual Terms
There can be no contract unless what the parties agreed can be determined objectively with a reasonable degree of certainty. A number of different terms have been used to describe clauses that are struck down for want of certainty. Whether the clause is said to be vague, ambiguous or uncertain matters little, the clause is void. Sometimes the court will label a term meaningless or illusory. A meaningless clause is one to which a meaning cannot be attributed and will be treated the same way as an uncertain
clause. An illusory clause has an identifiable meaning but will be treated as uncertain as it promises an illusory term.
The modern approach appears to emphasise the courts willingness to uphold an agreement entered into by the parties, particularly where the circumstance indicate that the parties intended to be bound by the agreement.
Lend Lease Financial Planning Ltd v Southcap Pty Ltd
Agreements to Negotiate
If parties do not reach final agreement on essential terms, instead agreeing to finalise such matters at a later time, the contract is an agreement to agree, therefore it is incomplete and will not be enforced.
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
If an agreement to negotiate is regarded as an agreement to agree, it to will be unenforceable
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
However, it was contemplated by Kirby P (in Coal Cliff Collieries Pty Ltd v
Sijehama Pty Ltd), that in appropriate circumstances, an agreement to negotiate could be enforceable. He concluded that if the parties provided good consideration and the
terms of the agreement to negotiate were sufficiently certain, such agreement might be enforceable. One mechanism to make an agreement to negotiate more certain, it
was suggested, would be to include a provision referring matters in dispute to a third party.
Saving Ambiguous, uncertain or meaningless contracts
Link to External Standard
A clause in a contract, which, on its face, appears uncertain, may be enforceable if a meaning can be given to it by reference to an external standard. The parties may provide for “a standard, machinery or formula designed by the parties to take the place of their own agreement”.
Hawthorn Football Club v Harding
The reference may be made in a direct way for example, incorporating standard hire purchase terms used by the particular hiring company. If such a set of standard hire purchase terms exists, the clause will be valid.
Recourse may also be made to external standards, even where the contract itself does not expressly provide such a link.
Hillas and Co Ltd v Arcos Ltd
Specifications agreed in the original contract could be regarded as an external standard.
Sometimes, the contract may provide for one or more terms to be inserted by a third party. (In a fashion, this is also a link to an external standard).
Hawthorn Football Club v Harding Godecki v Kirwan
Link to reasonableness standard
The court may be willing, in some circumstances, to adopt principles of reasonableness to make certain something that, on its face, is not.
‘The implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail’
Hillas and Co Ltd v Arcos Ltd
Severance
The invalidity of one term will not necessarily mean that the whole contract will be unenforceable. In some circumstances the invalid term can be severed and the remainder of the contract will be enforceable. Generally, if the parties would have intended to be bound in the absence of an uncertain clause, the clause can be severed and the remainder of the contract is enforceable
Fitzgerald v Masters
If the offending clause forms a pivotal part of the contract, so that without out it the parties could not have intended to be bound, severance of the particular clause is not possible.
Whitlock v Brew
Waiver or Removal of Uncertainty
If a clause is inserted in a contract for the benefit of one party only, but is drafted in such vague terms as to make it void, that party can choose to waive the benefit of the clause and have the remainder of the contract specifically enforced.
Whitlock v Brew
Incomplete agreement
The courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement for the parties to agree at some time in the future.
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd
Agreement contains mechanism to complete
It may suit the needs of contracting parties not to finalise various aspects of their agreement, but rather to insert in a mechanism for determining one or more terms at a later date for example external standard or third party.
a) Reference to a third party
Parties to a contract may leave terms of the contract to be decided by a third party, even essential terms.
Godecke v Kirwan
b) Discretion retained by a contracting party
It is uncertain that a contract that leaves minor terms to be determined by one of the contracting parties is enforceable.
A contract that leaves essential matter for later determination by one of the
contracting parties will be unenforceable as it is either incomplete or uncertain or because the promises contained in the agreement are illusory.
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
However, if a subsidiary matter was left to the determination of one of the parties such as how the contractual obligations are carried out by that party, it may be enforceable.
Godecke v Kirwan
Breakdown of Mechanism to Complete
If the parties a mechanism for determining a term and that mechanism fails, the court will not substitute it’s own view and complete the agreement.
Milnes v Gery
If the disputed issue is one of something such as the “price” of something (eg. Rent), a court may be prepared to determine a fair and reasonable price, and not to regard that determination as completing the agreement for the parties.
Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd Sudbrook Trading Estate Ltd v Eggleton
Saving Incomplete Agreements
Implication of Terms
There is a willingness of the courts to imply terms into an agreement. It is not for the court to make the contract for the parties, or to go outside the words they have used, except insofar as there are appropriate implications of law, as for instance, the
implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some details.
Hillas v Arcos
However, the court may not rewrite the agreement for parties where the parties themselves have failed to agree on essential terms. The greater the number of terms not finally agreed upon by the parties, the less inclined the court will be to exercise its discretion to imply a term. A contract could only be regarded as concluded if the parties agreed on the three essential elements: “the parties”, “the subject matter” and
“the price” and if these elements have been agreed upon with sufficient certainty the court will provide the rest.
Hall v Busst
In addition, there are two other factors that may be relevant in the courts determination.
First, if it is clear that the parties have gone beyond the state of negotiation and intend to be contractually bound, the court will be more minded to imply a term and enforce the agreement.
Hillas v Arcos
Secondly, and related to the first, if the contract has between partly executed, for example in a contract for the sale of goods, property has been delivered and title has passed, the court will seek to imply a term necessary for the validity of the agreement
Hall v Busst
Failure to specify price
a) Contract silent on price
The general principle is that a contract will only be regarded as valid if the parties to it agree on price (as this is one of the essential terms), this means that if there is no agreement on price stipulated in the contract, then the contract is not complete, and would not be upheld by the court.
Hall v Busst
However, there are exceptions.
There is a distinction between the sale of land and sale of goods with respect to the implication of terms by a court. For the sale of goods, the court is sometimes prepared to imply a term that the purchaser will pay a reasonable price for the goods. This intention is demonstrated for example, where the contract is partly executed and property in the goods has passed. A court will not imply a term for payment at a
reasonable price into a contract for the sale of land
Hall v Busst
b) Contract provides for parties to agree in future
An agreement to agree in the future also offends against the general principle of completeness. However, in some instances, in contracts for the sale of goods the court may imply a reasonable price and the contract will be upheld.
However, if the contract is to sell land, or on rental in an option to renew a lease, it is unlikely to be upheld) and will be treated as such matters which are silent on price.
Stocks &Holdings Pty Ltd v Arrowsmith
c) Contract makes provision for mechanism to complete
A contract that contains a mechanism for setting a term at a later time is likely to be valid. It is not uncommon for such a mechanism to be used in relation to setting a price.
Godecke v Kirwan
d) Contract provides for payment of a reasonable price
Whether the agreement is upheld as being sufficiently certain may turn on the nature of the subject matter in dispute. A contract for the sale of goods at a reasonable price is likely to be valid.
Sale of Goods Act 1896 (Qld)
Reasonable price is an objective standard that can be determined without further agreement between the parties. If one party breaches the agreement, the court can assess the price to be attributed to the goods, and damages can be awarded
accordingly.
British bank of Foreign Trade Ltd v Novinex Ltd
However, clauses to attribute reasonable price to the sale of land will generally be uncertain or for the sale of goods if they are unique or of very special character eg original painiting
Hall v Busst
Subject to agreements:
Sometimes parties may be ready to sign a contract but not able or not prepared to commit to one or more aspects of the agreement. In these circumstances parties may decide to enter into agreements subject to the happening of a particular event.
Subject to finance agreements
Contracts for sale may contain a clause stating that the contract is subject to the purchaser receiving approval for finance on satisfactory terms and conditions. The
contract is immediately binding on the parties but will come to an end if the purchaser is unable to obtain finance and terminates the contract pursuant to its terms.
Meehan v Jones
It has been argued that a clause that provided for finance to be obtained on
‘satisfactory terms’ is either to uncertain to be valid or gave the purchaser such a wide discretion that it was illusory. The High Court disagreed, and stated that as the clause was inserted for the benefit of the purchaser, the determination of whether the finance was satisfactory was left to the purchaser
Meehan v Jones
b) Steps to be taken to obtain finance
The finance clause in most standard land contracts imposes an obligation on the purchaser to take all steps reasonably necessary to obtain finance approval.
Meehan v Jones
Subject to Contract
For agreements that are formed subject to contract, the case could fall into one of three categories:
1. The parties have reached finality in arranging all terms and intend to be immediately bound to perform those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. The parties intend to be bound immediately thus a binding contract is formed.
Masters v Cameron Branca v Corbarro
2. The parties have completely agreed upon all terms and intend no departure from or addition to those terms, but have made performance of one or more of those terms conditional upon the execution of a formal document. An offer in such a case is not expressed to be subject to or conditional upon a formal execution of a contract and all essential terms have been agreed upon thus a binding contract is formed.
Masters v Cameron
Niesmann v Collingridge
3. The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. Parties in such a case do not intend to be bound until they entered into a formal document thus no binding contract is formed.
Masters v Cameron
The category a particular case falls into turns on the intention of the parties. If the parties intend the agreement to be binding on them even before entry into the final
Masters v Cameron.
Intention to create legal relations
:
Statement of the Rule
To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.
Rose and Frank Co v JR Crompton & Bros Ltd
The courts use an objective test in making a determination about the intention of the parties. In making an objective determination of the parties intention, the court looks
at the surrounding circumstances and asks if a reasonable person would regard the agreement as intended to be binding.
Merritt v Merritt
Domestic and social relationships
Presumption
The presumption is that domestic and social agreements are not intended to have legal force.
Heslopv Burns Balfour v Balfour Jones v Padavatton
Rebutting the presumption
The presumption can be easily rebutted for example if parties who are in a familial relationship are contracting in a business context or if a husband and wife enter into an agreement in circumstances in which they are no longer living in harmony.
Similarly, if the words used in the contract indicate a legal intention, the presumption that may otherwise have arisen may be rebutted.
Case Examples:
a) Husband and Wife
Parties involved in a domestic relationship, will generally not have intended legal consequences to follow their arrangement thus a contract will not be enforceable. Given many couples now choose to cohabit without marrying, the same presumption
should apply where an agreement is entered into between a couple living in a de facto relationship.
Balfour v Balfour
b) Separated husband and wife
Where parties are divorced, separated, or in the process of separating, the negotiation do not take place in the context of natural love and affection therefore there is no room left for the application of such a presumption and the court will generally find that the requisite contract intent existed.
Merrit v Merrit
c) Other familial relationships
Parties in other familial relationships are considered the same as married or de facto couples, and it is presumed that they do not intend to cerate legal relationships as the agreements made in this context are based on natural love and affection. The bond of natural love and affection is likely to weaken according to the remoteness of the tie and will subsequently be easier to rebut.
Jones v Padavatton
In fact, those cases where the court finds that the presumption has been rebutted, one or more of the following factors are often relevant
• The seriousness of the conduct involved (such as moving countries or giving up full time employment)
• The expense involved, especially if the relevant party is not wealthy • Whether there is or has been a degree of hostility in the relationship • The closeness of the family ties
• Whether the subject matter of the agreement is business or commercial in nature Examples Jones v Padavatton Wakeling v Ripley Roufos v Brewster d) Social Relationships
The presumption of lack of legal intent can extend beyond familial relationships to agreements entered into in a social context, or agreements made between friends.
Heslop v Burns
However, a court will not always find that the parties lacked legal intention, even when the arrangement is clearly made between friends or a relative in a social setting. (eg. parties who pool funds to enter a competition in one person’s name may intent
that arrangement to have legal consequences. Therefore, if the person wins, action can be brought to force that person to share the winnings with the other members of the groups. While this is fair, it is doubtful that parties who participated in syndicate intended their action to have legal consequences). The court may be more likely to uphold such a decision if large amounts of money are involved.
Simpkins v Pays
Commercial Agreement
Presumption
Where parties negotiate and agree in a business setting, it is assumed that the parties intended the agreement to have legal consequences. Therefore, the party alleging that an agreement relating to business matter is of no legal effect has the heavy onus of demonstrating that to be the case.
Edwards v Skyways
It can sometimes be difficult determining whether a transaction has taken place in a business setting, a broad approach to what constitutes a business setting must be
adopted.
Esso Petroleum Co Ltd v Customs & Excise
Rebutting the Presumption
The intention not to create legal relations may be evident in a number of different ways. For example, the agreement may contain an express clause that no legal
consequences flow from the document, or the overall tenor of the particular document may indicate that the parties had no intention to enter into legal relations.
Rose and Frank Co v JR Crompton & Bros Ltd
Government Activities
Commercial Agreements
If a government contract arises out of the commercial need for the operation of
government, for example the order of stationary or contracts to purchase vehicles, the usual contractual principles apply to determine whether a contract has been formed. For other types of contracts, increased formality may be required to demonstrate the necessary legal intent when one of the contracting parties is the government.
Policy Initiatives
Where the government activity relates to a policy initiative a court may be less likely to find that the parties intended to enter contractual relations.
Australian Woollen Mills v The Commonwealth Administration of PNG v Leahy
Voluntary associations
Unless there was some clear positive indication that the members contemplated the creation of legal relationsinter se, the rules adopted for their governance would not be treated as amounting to an enforceable contract.
Cameron v Hogan
The parties could possess requisite legal intent if the member has a proprietary interest in the club.
Cameron v Hogan
Circumstances indicating absence of intention
Honour Clauses
The presumption that arises in a commercial context is that the parties intended to create legal relations by entering the agreement. It is however, open for the parties to form a contrary. The presence of an honour clause in contracting parties agreements will indicate by express words that they did not intend the agreement to have legal consequences.
Rose and Frank Co v JR Crompton and Bros Ltd Jones v Vernon’s Pools Ltd
Promotional puff and free gifts
Where language such as ‘free gift’ is used, or an apparently extravagant claim is set out in an advertisement, there may be a tendency to think that a person who acts in response to the advertisement may not intend legal consequences to follow. To determine whether the requisite intention exists, the court will look not only at the words used, but also at the entire context in which the advertising takes place.
Esso Petroleum Co Ltd v Customs & Commissioners of Customs & Excise
Similarly, if the language used conveys intention, such as the deposit of $1000 in a bank for the purpose of payment, it would have legal consequences.
Ex gratia payments and without prejudice offers
Parties who offer to make an ex gratia payment or who write a ‘without prejudice’ letter which is accepted, are still seen to posses the intention to create legal relations.
Edwards v Skyways.
The words ex gratia do not carry a necessary, or even a probably, implication that the agreement is to be without legal effect . . . a party is certainly not seeking to include the legal enforceability of the settlement itself by describing the contemplated
payment as ex gratia.
Edwards v Skyways.
Letter of Comfort
Central to the determination of whether a letter of comfort gives rise to legal intent is whether the parties intended to create legal obligations by the giving and receiving of the letter. To determine this, the courts look at the construction of the document and the circumstances surrounding its sending. The following points were considered by the authority in assigning legal intent to the letter of comfort:
• On a construction of the letter, the terms were sufficiently promissory in nature.
• The letter was part of a commercial transaction in which there is a presumption that legal relations were intended.
• Intention is deduced from the document as a whole seen against the background of the practices of the particular trade or industry.
Banque Brussels Lambert SA v National Industries Ltd
Letter of intent and understandings
Parties sometimes conduct their affairs on the basis of an understanding between them, which may arise orally or be put in writing. Question about its contractual standing may arise where one party no longer wishes to be bound. A related issue arises in the area of letters or documents of intent. Generally, a letter of intent or an understanding will represent something short of an intention to enter a concluded agreement.
Coogee Esplande Surf Motel v Commonwealth Milner & Son v Percy Bilton Ltd
Consideration
:
Whether or not a promise that is part of an agreement can be enforced depends on, among other things, whether the promisee has given consideration for the promise. Consideration is perhaps best understood as an act or promise of an act which is the
price paid for the other's promise. The common law will only enforce a promise for which a price is paid.
Dunlop Pneumatic Tyre Co v Selfridge & Co
The development of the Doctrine of Promissory Estoppel, under which a promise that has been relied upon to another’s detriment may be enforced by that other despite the lack of consideration.
Waltons v Maher
Nature of Consideration
An act or forbearance of one party, or the promise there of, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.
Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd
Consideration in Bilateral Contracts
A bilateral contract is formed where the parties exchange promises. At the time
agreement is reached, each party makes a promise. The price paid for that promise – the consideration – is the other party’s promise. Each party promises to do an act or refrain from doing an act.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
Consideration in Unilateral Contracts
Unlike bilateral contracts, a unilateral contract does not constitute an exchange of promises. The only promise is the one made by the promisor to do or refrain from doing an act if the other party does or refrains from doing an act. Thus, the act or forbearance itself, rather than the promise, constitutes the consideration.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
Executed and executory consideration
In bilateral contracts, the consideration is considered executory. In bilateral contracts each party exchange promises with the other to do or refrain from doing an act. This means that the obligation to perform has not yet fallen due, therefore the
consideration is “executory”. In unilateral contracts the parties do not exchange promises. Only one party will make the promise and an obligation will only arise if
the other party carries out the specified acts. Consideration for the promise is not executory because the act has not been promised by the promisee. If the promisee chooses to and does perform the specified acts, the consideration is “executed”.
Rules governing consideration
Consideration must move from the promisee
For there to be a contract between the promisor and the promisee, consideration must move from the promisee.
Dunlop Pneumatic Tyre Company v Selfridge & Company Ltd Trident General Insurance Company Ltd v McNiece bros Pty Ltd Tweddle V Atkinson
a) Benefit need not move to promisor
It will generally be the case that consideration moves from the promisee to the
promisor, whether the promisee promises to pay money, or do or forbear from doing an act. However, it is sufficient if consideration moves from the promisee to a third party at the direction of the promisor.
b) Joint promisees
When a promise is made to joint promisees, it is enough if consideration is given by one on behalf of all because it is then deemed to have moved from all.
Coulls v Bagot’s Executor & Trustee Co Ltd
c) Overlap with doctrine of privity
The doctrine of privity provides that only a person who is a party to a contract can sue on it. A promisee is only able to sue on a promise if the promisee has given
consideration for the promise.
Tweddle v Atkinson
Consideration must be bargained for
The act of forbearance must be done in reliance of the promise and at the request of the promisor and not done for other reasons (that are unrelated to the contract in question).
Combe v Combe
Australian Woollen Mills Pty Ltd v The Commonwealth
Consideration must be sufficient
a) General principle
To be valid, consideration must be sufficient in that it is ‘something which is of value in the eyes of the law’. Consideration may be valid although it cannot be given
monetary equivalent.
b) Consideration need not be adequate
Consideration must be sufficient but need not be adequate. The court will not enquire into the adequacy or value of the consideration.
Chappell & Co v Nestle Co Ltd
A moral obligation or worthy motive does not constitute consideration.
Eastwood v Kenyan Thomas v Thomas White v Bluett
c) Consideration can be nominal
Consideration will be regarded as valid even if it is nominal only. (Eg. Token gesture)
Thomas v Thomas Lennox v Cameron
Niesmann v Collingridge
Consideration must not be past
a) General Principle
The consideration will be regarded as being past if it has already flowed from the promisee to the promisor prior to the agreement being entered into.
Roscorla v Thomas
b) Past consideration distinguished from executed consideration
If the act, forbearance or promise that is claimed to be consideration has already occurred or been given before the agreement is entered into, the consideration is past not executed.
Consideration and formal agreements
Deeds
Formal agreements are signed under seal, and are more commonly referred to as deeds. Because of the solemnity or seriousness of the manner of execution of such documents, the common law has recognized these agreements as valid even if consideration has not been provided. Simple agreements are agreements other than formal agreements, which are oral or written and require consideration to be valid.
Consideration: specific examples
Moral Consideration
A promise made because of a sense of moral obligation to the promisee will not be sufficient consideration to support that promise.
Eastwook v Kenyon
A promise made because of the love and affection that the promisor and promisee have for each other, or that the promisor has for the promisee is not legally
recognized (without consideration)
White v Bluett
Performance of existing duties
a) Performance of existing contractual duties
Generally a promise by one party (the promisee) to perform an existing contractual duty owed to another party (the promisor) does not constitute good consideration for the promisor’s promise.
Wigan v Edwards
Where the plaintiff is bound by an existing contractual duty to the defendant, performance of that duty will not amount to sufficient consideration to support a
further promise made by the promisor, unless the duty is exceeded.
Stilk v Myrick
A court may be prepared to find that the parties have agreed to abandon their original agreement and enter a new one.
Hartley v Ponsonby
The court may be willing to accept performance of an existing contractual duty as good consideration where it provides a benefit to the promisor.
Williams v Roffey Bros
b) Performance of a public duty
Where a public duty is imposed upon the plaintiff by law, performance of that duty is insufficient consideration for the defendants promise unless the duty is exceeded.
Glasbrook Bros v Glamorgan County Council
c) Where promise is made to a third party
A promise to perform an existing contractual duty owed to another party can be good consideration for a promise.
Pao On v Lau Yiu Long
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd
Part Payment of Debt
a) Rule in Pinnel’s Case
A promise to pay part of a debt cannot constitute consideration for a creditor’s promise to forgo the balance (commonly referred to as the ‘rule in Pinnel’s case’).
Pinnels case
If an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full
satisfaction of the amount, the later amount agreement will generally not be binding because the debtor has not provided consideration for the creditor’s promise to forgo
the balance due. Therefore, even if the debtor acts on this agreement by paying the lesser sum agreed – and the sum is accepted by the creditor – the creditor will
generally be able to sue the debtor for the balance due.
Foakes v Beer
b) Circumstances in which the rule will not operate • Parties enter into a deed
Consideration is not required, however, for specialty agreements (formal agreement under seal). If the parties enter into a deed under which the creditor forgoes part of the amount owing, that arrangement will be enforceable despite the absence of consideration.
• Accommodation to benefit the creditor
If a debtor provides consideration for the creditor’s promise, Pinnel’s rule will not apply.
Van Burgen v St Edmonds Properties
Examples of how the arrangement could be altered by the creditor: • Payment on an earlier than scheduled date
• Payment at a location more convenient to the creditor • Payment in a currency more desirable to the creditor
Payment made at a different place for the debtor's convenience does not evade the rule.
The rule in Pinnel’s case will only operate when there is no dispute between the parties as to the amount owed. If the parties cannot agree on an amount owing, they
may wish to enter into a compromise agreement. In the case of a compromise, although the creditor promises to accept an amount less than what the creditor contends is the account of the debt in full settlement of the debt, the debtor has provided consideration for the creditor’s promise. The debtor has agreed to pay an
amount more than the debtor believes to be due. This is good consideration even if the creditor is in fact correct and the amount claimed by the creditor is actually due.
H B F Dalgety LTd v Moreton
• Payment by a third party
If a debtor is unable to meet his debt to the creditor and obtains assistance from a third party to do so, the third party to placate the creditor may offer a lesser some than the full amount owed to bring the matter to an end. As the third party is not indebted to the creditor, his/her promise to pay an amount should be good consideration for the creditor’s promise to forgo the balance of the debt. The fact that payment is by a third party and not the debtor takes the case outside the operation of the rule in Pinnel’s case.
Hirachand Punamchand v Temple
• Composition with creditors
Under a composition with creditor’s agreement, the creditors all agree to accept
payment of something less than the full amount owing by the debtor, in exchange for giving the debtor a full release. Creditors may agree to such an arrangement if it appears that this is the most likely avenue to recover any amount from the debtor
In the Estate of Whitehead
Forbearance to sue
A forbearance to sue or to refrain from exercising some legal right may constitute consideration, even if the plaintiff would have been unsuccessful in the original claim, provided:
- The claim was reasonable and not frivolous or vexatious - The plaintiff honestly believed the claim would succeed
- The plaintiff did not conceal from the defendant any facts that to the plaintiff’s knowledge might affect the validity of the claim.
Hercules Motors Pty Ltd v Schubert
Bargain for conduct already performed
The exception to the rule that past consideration will be ineffective to support a promise is that if the services would only have been provided on the basis of payment.
