Contract Law
“A contract is a legally binding promise or agreement. The person (or persons) who make a promise is termed the ‘promisor’. The person (or persons) to whom the promise is made is termed the ‘promisee’.”
What is a contract?
Legally binding promise or agreement. The person who makes a promise is termed the ‘promisor’. The person whom the promise is made is the ‘promisee’. (TB, p5)
‘A contract is a promise or a set of promises for the breach of which law gives a remedy, or the performance of which the law in some way recognises as duty. (TB, p5)
‘A contract is an effective assumption of legal contractual obligation. (TB, p14)
There are several factors for a contract to be effective: - Offer - Acceptance - Consideration - Certainty - Intention - Capacity
Contract law aims at providing an institutional basis for arrangements made for the transfer of land, goods, and services
There is an “institutional basis” that includes not only the fact that contract law comprises various doctrines but also the fact that society provides an institutionalised system for the enforcement of contracts
Contract law holds the principle of freedom to a high regard – all “arrangements” that are referred to are consensual arrangements. Doctrine of freedom of contract – “1) Contracting parties should be free to agree to whatever agreement they wish; and 2) people should be free to decide to enter into contracts with whoever they please and should not be compelled to enter contractual relationships”
Theories to explain contract law:
The will theory – representation of the will of the contracting parties
The bargain theory – suggests that contracts are binding because they represent a bargain made between the parties. Doesn’t explain contracts where the parties have exchanged something valuable
The promise theory – the belief that contracts are established on the moral principle that people ought to do what they promise. However this is not rational
The reasonable expectations theory – there should be a reasonable expectation that the promise will be performed – fails to look at the rationale of all cases.
The reliance theory –a contract is formed when one party has relied on ta promise made by another and the reliance has resulted in a detriment
The consent theory – there must be a manifestation of the consent of the transferring party
o However, none of these theories offer a complete explanation as to why contracts are enforced
Types of contracts:
A contracted expressed as a sealed instrument is a ‘deed’ TB pg 7. A ‘special contract’ is a contract under seal
All other contracts are simple contracts – one that is supported by consideration
Also, note that contact can be ‘unilateral’ or bilateral. A contract is said to be ‘unilateral’ is there is only one promisor. However, if there is more than one promisor the contract is ‘bilateral’ or ‘multilateral’.
The doctrine of Freedom of Contract
- The doctrine of freedom of contract is central to CL and holds:
‘(1) Contracting parties should be free to agree to whatever agreement they wish; and (2) people should be free to decide to enter into contracts with whoever they please and should not be compelled to enter contractual relationships (TB, p6-7).
Critiques of the doctrine of Freedom of Contract
- The doctrine of freedom of contract has been critiqued because its underlying assumptions do not account for structural power imbalances in society.
- ‘ The ability to a free to whatever terms the parties wish is only valid if the assumption behind the concept of freedom of contract is valid. The assumption, of equal bargaining positions, is simply not valid in most customer contracts.’ (TB, p7)
Inroads into the doctrine of Freedom of Contract
- Criticisms that the doctrine of freedom of contract operated unjustly in certain situations due to inequality of bargaining power led to the development of some inroads in order to give greater protection to the party with the weaker bargaining power in some types of contracts.
- E.g. Consumer Protection legislation such as the Australian Consumer Law (which contains provisions about unfair contract terms, consumer guarantees, product safety, misleading and deceptive conduct and unconscionable conduct. (TB, p27)
Bringing a contract to an end
- There are numerous ways for a contract to come to an end.
E.g. where the party has failed to perform their obligation under a contract they will have breached the contract and may be entitled to an award of damages (provided that certain elements are satisfied). The type of damages awarded will depend upon the nature of the term breached. For the purpose of damages, contract law classifies terms as conditions (very
serious), warranties (less serious) or intermediate terms (terms which could cover a range of consequences some of which are serious and others trivial).
These are important to determine the award for parties. Remedies
- When a contract is not brought to an end simply by the parties performing their contractual obligations there are a range of remedies that may be pursued depending on the
circumstances. Remedies include:
Damages: a form of monetary compensation where the object is to compensate not to punish the breaching party. Awarded provided that certain elements are satisfied. Specific performance: a discretionary equitable remedy where a court orders a party to perform their contractual obligation provided that certain elements are satisfied.
- Injunction - Rescission - Restitution Formation of a contract:
1. Offer
Offer: An expression of willingness to contract on the terms stated. Offeree: The person to whom the offer is made.
Offeror: The person who makes an offer.
Offer and Acceptance are the traditional approaches in determining whether parties who were contemplating entering into a contract have passed the stage of negotiating and concluded an agreement
- The law of contract will enforce obligations where there has been agreement between parties. Absent of agreement, there can be no contract. (Gibson v Manchester City Council) - The courts are looking for consensus ad idem- a meeting of the minds between two parties. - The traditional analysis is to ask: has there been an offer made by on party to be bound by
terms of a contract is accepted by another?
- Besides offer and acceptance, the necessary elements of an enforceable contract are: i. An intention to create binding legal relations
ii. Consideration
- Offer and acceptance are a means of analysing the process of negotiation to decide whether and when a contract has been made and what therefore constitutes its terms.
Key principle is that an offer is an expression of willingness to contract on the terms stated in the offer.
Whether there is an offer depends on whether a reasonable person in the position of the offeree would consider that an offer was made. Question of intention-determined objectively.
- Any proposition is an offer if it shows a party’s intention to be legally bound immediately upon acceptance of the proposal. Such an intention is met where an offer has been made in clear and unequivocal terms. (Gibson v Manchester City Council)
- An offer can be made by words and/or conduct. The existence of an offer is ascertained by asking whether a reasonable third party would conclude an offer had been made. This objective test takes into account:
The express conduct or words used by the parties rather than their subjective intentions. Whether the terms are complete enough so that acceptance is enough to constitute a contract.
- An offer must be communicated to the offeree and received, otherwise the offer is ineffective. Thus, one cannot receive an offer from a third party; offeror or an authorised agent of offeror to offeree must communicate offer.
- However, it is not necessary for an offer to be made to be a specific person or a glass or group of people. An offer can be made to ‘all of the world’, in which case the offeree is regarded as a member of the general public. (Carlill v Carbolic Smoke Ball Co)
- When an offer is made, the terms of the proposed contract must be communicated to the offeree.
- However, an offer can be made in general terms, leaving the precise terms of the contract to be settled later.
- The facts that the word ‘offer’ is used is not itseld conclusive (B Seppelt & Sons Ltd v Commissioner for Main Roads)
- An offer must be distinguished from an ‘invitation to treat’, which can be described as any part of the negotiation process that invites further bargaining, rather than acceptance. Australian Woollen Mills P/L v Commonwealth (1954)
Facts: In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.
Plaintiff argued:
(1) There was a contract between it and the Government under which Commonwealth promised to pay subsidies if wool was bought for domestic consumption/manufacture.
(2) The plaintiff made purchases of wool in pursuance of the agreement.
Held
There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool.
There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act.
Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not
intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’
The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry. In this respect the Court noted that ‘It is of the essence of contract … that there is a voluntary assumption of a legally enforceable duty. … It is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation.
Carlill v Carbolic Smoke Ball Co
- Unilateral contract – where the offer contemplated the doing of an act
Facts
The defendants were the proprietors and vendors of a pseudo-medical preparation called “The Carbolic Smoke Ball”
Plaintiff bought a smoke ball as per the ad and used it over 8 weeks unfortunately she contracted the flu
She sued the defendants as per the ad she was entitled to 100 pounds
The defendant appealed – principle matter of the case was whether or not the ad was a matter of the law, an offer
Issues Lindley LJ
The advertisement was more than a “mere puff” on the basis that 1000 pounds was deposited with the Alliance Bank.
An offer can be made to all of the word, and can be accepted by performance of the conditions.
As a general proposition, when an offer is made it is necessary that acceptance must be notified in order to constitute a binding contract. But a person may show “by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance”
Bowen LJ
A court will look at who was intended to read the offer and what a reasonable person would understand it as saying
An offer may be made to all the word, which will “ripen into a contract with anybody who comes forward and performs the condition”
Acceptance of an offer ought to be notified to the person who makes the offer, but the person who makes the offer may dispense with the notice requirement
Key points:
The terms of an offer are determined objectively An offer must be more than a “mere puff” An offer can be made to all the world
An offeror can prescribe the mode of acceptance
Does one who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waive notification of acceptance, if his purpose is to sell as much product as possible?
Principle issue” whether the advertisement was, as a matter of law, an offer. Outcome on Issue
On the issue of whether there was a valid offer: The Company argued that the ‘promise’ was not made to anyone in particular. The Court, however, held that this was not a 'contract with the world' (which would not be practicable) but was simply an offer to the world capable of becoming a contract with anyone performing the stipulated conditions. The Court also
Commentary
- In Carlill the contract was unilateral contract - a one-sided agreement whereby you promise to do (or refrain from doing) something in return for a performance (not a promise)., and the offer took the form of a promise in return for the doing of an act rather than in return for a counter promise.
- However, in some cases the making of a counter promise will be inferred from the doing of an act called for by the Offeror. Such a contract is bilateral.
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern Ltd)
Question of whether a person who sells goods on a ‘self serve’ basis makes an offer by displaying the goods for sale
Facts Boots operated a self-service shop in one part of which certain drugs were displayed.
rejected the Company's claim that their advertisement constituted a mere 'puff' and was not intended to be promissory. The Court was assisted in this regard by the stipulation in the Company's advertisement that a bank deposit of £1,000 had been made as a demonstration of sincerity.
On the issue of communication of acceptance: Lindley LJ: ‘Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified.’ In this case, however, it was not necessary to notify of acceptance prior to performing the requisite acts - the language of the offer showed the Company had waived the need for notification. Bowen LJ also made it clear that the ordinary rule was that acceptance ‘ought to be notified to the person who makes the offer, in order that the two minds may come together.’ However, as ‘notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice’ if he wishes or to stipulate a
preferred method of acceptance. If the Offeror (in this case the Company) expressly or impliedly indicates that it will be sufficient to perform the acts requested in the offer without communicating that to him, then ‘performance of the condition is a sufficient acceptance without notification.’ In most advertising cases, including this one, the inference in the advertisement is that ‘a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with.’
On the issue of consideration: There was consideration. Consideration was the benefit of sales to the promisor and the inconvenience Mrs. Carlill suffered at the request of the promisor (although the Court said that it would be sufficient if Mrs. Carlill suffered the detriment from using the smoke ball as directed even if the Carbolic Smoke Ball Co received no benefit).
Outcome
When a customer chose goods, he or she put them in a wire basket and took them to an attendant at the cash register at one of the shop’s exists.
Whenever a customer took drugs to the cash register the pharmacist supervised that part of the transaction.
Issues Somervell LJ:
In the case of an ordinary shop, it is intended that customers should go and choose what they want, and the contract is not completed until after the customer indicates the goods that he or she needs and the shopkeeper accepts that offer.
Key points:
An invitation to treat is not an offer
Outcome In favour of the defendants – appeal was dismissed
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 Issue Whether an airline ticket issued by MacRobertson Miller was
chargeable with stamp duty as an ‘agreement’
The airline’s practice was first to quote the fare and availability of seats and then to issue a ticket in return for the fare (invitation to treat- still the common way when dealing paper tickets/ travel agents)
The ticket contained a condition giving the airline the right to cancel a flight or cancel a booking without incurring any liability
The High Court unanimously held: a ticket did not record the terms of an agreement, rather the terms of an offer which was subsequently accepted by conduct
i. Airline- Invitation to treat
ii. Passenger- Payment (Not strictly an offer) iii. Airline- Ticket (the offer- contains terms of the K) iv. Passenger- Able to accept or reject once had reasonable
opportunity to read the conditions Slightly different reasoning behind the decision: Barwick CJ:
The arrangement was similar to a unilateral K
The passenger made the offer which could be accepted by conduct
If the airline carried the passenger, then the airline would be entitled to retain the fare as a reward If the passenger was not carried, the airline incurred no
obligation other than to refund the fare
On that basis, there were no Contractual obligations between the airline and the passenger until the airline provided the passenger with a seat on the plane Jacobs J
Agreed with Stephen J- formation of K could not precede the notification of special conditions The ticket simply recorded the terms of an offer made
by an airline Stephen J:
Adopted the conventional analysis in ‘ticket cases’ The ticket constituted an offer by the airline The passenger could accept or reject once has had
reasonable opportunity to read the conditions
The ticket therefore records the terms of the offer (the offer)
B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
Plantiff negotiated with the defendant for the sale of land in which D needed in connection with the construction of a proposed freeway. A number of letters passed between the parties. Attention focused on a letter from the commissioner-dated 5.3.1974, which referred to the possible sale on terms set out in the letter.
Duration of Offers
Three main principles applicable to the duration of offers:
1. Offer may be withdrawn at any time before the acceptance, even if the offer is stated to remain open for a definite period of time
2. Revocation of an offer must be communicated to the offeree (the postal rule doesn’t apply to revocation of an offer in a letter)
o Technique in applying these principles is to distinguish between an offer not supported by consideration from which one has been purchased, known as an ‘option’ – that cannot be withdrawn prior to its expiry
3. Rejection of an offer or the making of a counter offer revokes an offer. Dickinson v Dodds
to sell to Mr George Dickinson {property} for the sum of 800 pounds – this offer to be left over until Friday, 9am 12th June 1974”
On Thursday Dickinson was informed that Dodds was selling that property to Allan
He then went and delivered a formal acceptance letter to Dodd’s house where his mother in law took it; she forgot to give this to Dodds Dodds entered a formal contract with Allan and claimed that Dickinson was too late – Dickinson sought specific performance
Bacon VC held that there was a binding contract to Dickinson, ordered special performance and made a declaration that Allan had no interest in the property
Issues Dodds and Allan appealed
Issue of whether Dickinson had agreed to purchase the property – whether the acceptance of Dodd’s offer was given on time and whether Dodd’s had effectively revoked the offer
The appeal would be allowed if Dodds revoked the offer and communicated revocation
Things to be considered: - What is revocation?
- The point that revocation can take place prior to expiry - The question of when indirect communication is sufficient Outcome on
the Issue
Dependent on whether his acceptance of Dodd’s offer was given in time.
Rule of Law Promises to keep an offer open until a certain time will be only a promise unless made by binding by consideration and acceptance necessary to form a binding agreement.
Held The offer to be held open until Friday 9 o’clock was only an offer that was not supported by consideration or acceptance by Plaintiff. There was no binding agreement to keep the property unsold until 9 o’clock Friday morning. Concurrence. The other party was free to make a more favorable offer to Defendant, which he was free to accept.
There was no binding agreement between Defendant and Plaintiff since Plaintiff had not accepted the offer. In addition, it was questionable whether Plaintiff could accept at all once he had knowledge that the person had sold the property to someone else.
Offer can be withdrawn anytime before acceptance Outcome - Appeal was dismissed
Goldsbrough Mort and Co Ltd v Quinn
Facts On 8 February John Thomas Quinn and Goldsbrough agreed that in consideration of 5 shillings, G had the right to purchase land from Quinn
within 1 week and on the exercise of that option, agreed to transfer the whole of the land to G.
Quinn subsequently revoked the offer
G accepted the offer within the week (but after the “revocation”).
Issues Griffiths CJ:
An offer may be withdrawn at any time before acceptance. In this case, it was not a mere promise, but a contract for valuable
consideration (an ancillary contract). G was bound in contract to keep the offer open.
Isaacs J
Unsupported by valuable consideration, the “offer” was a mere promise and could be withdrawn.
The consideration ensured the continuance of the offer, by “creating a relation in which the law forbids the offeror retracting it”
Key Points
An offer can be withdrawn at any time before acceptance
Where there is consideration for an offer, it cannot be withdrawn Outcome Appeal was allowed – the appellants were allowed to an order for
specific performance
Australian Woollen Mills Pty Ltd v Commonwealth (1954)
Facts In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.
The facts of this case are somewhat involved, but in essence, the Australian Govt announced a subsidy scheme to maintain the price structure in the wake of the Second World War. The plaintiff claimed to have made purchases of wool "in pursuance of the said agreement", that is, under the subsidy scheme, but the
Government refused to pay the subsidy.
The plaintiff argued that a contract had been formed by the offer of a subsidy by the Government that offer being accepted by the doing of an act by the plaintiff, that is, buying the wool.
Issues The Court criticised the use of the word unilateral in respect of this type of contracting, but commented that the alleged contract
here was of the promise for an act type of contract. The court said that one needs a quid pro quo -
the statement and actreferred to must exist in a clear relationship to each other. The doing of the act must be based upon the promise - not merely coinciding with it. Eg, if A says to B "I will pay you $100 on your arrival in Sydney" B could not necessarily
enforce the promise on arrival. It may be that B was planning to go to Sydney anyway and did not act in response to the offer. There must have been a voluntary assumption of a legally
enforceable duty, so that the offer should have been intended to give rise to a legal obligation. Without such an intention, no "offer" so-called can lead to a contract. A test which has often been applied is to ask whether there has been a request by the alleged promisor that the promisee do the act on which the latter relies. The request may be express or implied.
Was the promise in this case in the nature of a request - EXPRESSED or IMPLIED? It is impossible to say that there is a contract binding on the Commonwealth. Here, the
announcements were not from commercial motivation, but from a Government trying to deal with the aftermath of war - public money is involved.
If there was an intention to create a legal obligation, one would have expected statutory authority to be sought.
One has to look at the context in which the documents arose - they cannot be seen as a standing offer - capable of acceptance by the act of purchase. The subsidy was not a request, invitation or an inducement to purchase wool. There was nothing to suggest that the subsidy and purchase of wool were related, no quid pro quo.
Conclusion Held
There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. The Court stated that in cases such as this:
‘… it is necessary, … that it should be made to appear that the statement or announcement which is relied on as a promise [here the subsidy statement] was really offered as consideration for the doing of the act, and that the act [buying and using the wool as directed] was really done in consideration of a potential promise inherent in the statement or announcement.’
There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act.
Appeal was dismissed
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 Facts A person wishing to fly on MacRobertson Miller Airline Services
was told what seats were available and the fare. Passenger was handed a ticket in return for the fare Passenger presented the ticket to board the flight
Airline reserved the right to abandon any flight, or cancel any ticket or booking. Passenger would be entitled to a refund equal to the proportion of the cancelled flight.
Airline was under no other liability to the passenger for failure to carry her or him at the scheduled time.
Issues Barwick CJ
Where a ticket does not contain a promise to carry a passenger on a specified flight, there is no contract until the airline has provided the passenger with a seat on the plane.
Stephen J
The ticket is an offer, the contract being made upon acceptance of that offer by the passenger, usually by conduct.
Acceptance may be:
an overt act consistent only with acceptance (eg. boarding the plane); or
the passenger’s failure to reject the offer after he has had an opportunity of learning the conditions upon which carriage is offered (but see Felthouse v Brindley)
What will be a reasonable time within which to reject proffered terms will be a question of fact in every case
Conclusion Key points:
Where there is no promise contained on the ticket, the ticket for carriage is an offer
Acceptance does not occur when ticket is purchased, but at some time afterwards (depends on the facts of the case)
Gibson v Manchester City Council [1979] 1 WLR 294
Facts In 1970, Manchester City Council adopted a scheme that allowed tenants to purchase their homes
MCC circulated a brochure to tenants
On 28 November 1970, Mr Gibson filled in an application attached to the brochure
purchase price of the house.
Gibson completed an application form (leaving the purchase price blank) and returned it to the council.
Before formal contracts were prepared, Council resolved to abandon the scheme and would complete only sales for which binding contracts had been completed.
Issues Lord Diplock
There may be exceptional circumstances that do not fit into the normal analysis of a contract being constituted by offer and acceptance
Saw no reason in this case to depart from the conventional approach of offer and acceptance
Found that there was no firm offer
There can be no acceptance without an offer Conclusion Key points:
Use the classical analysis of offer/acceptance except in exceptional circumstances
A contract cannot be formed unless there is a firm offer Acceptance must be in response to an offer
Mobil Oil Australia v Wellcome International (1998) 81 FCR 475
Facts Mobil operated a franchise scheme known as the Circle of Excellence
GM for Retail Marketing told franchisees that Mobil wanted to implement a scheme whereby a franchisee who:
achieved a score of 90% or better would receive a free year Achieved a score of 90%+ in each of the 6 years following 1991,
would be granted a 9 year renewal for free
A videotape of this address was sent to all franchisees, and also communicated in brochures
Several franchisees commenced to improve their services on the basis of this information.
In 1994, Mobil announced that it would not grant renewals free of charge
Issues Lockhart, Lindgren and Tamberlin JJ
Was there an offer? Too vague and uncertain to give rise to contractual obligations
If there was an offer, could it be revoked?
Traditionally understood that an offeror is not at liberty to revoke the offer once the offeree embarks upon the act of acceptance This approach was questioned – concluded that there is no
offer once the offeree embarks upon the act of acceptance The absence of a universal rule does not result in unfairness –
may be an implied ancillary contract not to revoke the offer.
Conclusion Key points:
The offer must be sufficiently certain
In unilateral contracts, commonly understood that offer can’t be revoked once acceptance has commenced, but this is not a universal rule and depends on the facts
Stevenson Jacques and Co v McLean (1880) 5 QBD 346 [3.82]
Facts The defendant held documents of title to certain quantities of iron and offered to sell them to the plaintiff for 40/- cash, indicating that the offer would be held open until the following Monday. The plaintiff was a broker and would only buy once they had lined up a buyer to take from them.
On Monday at 9:42am P sent a telegram to D sounding out what flexibility there might be to negotiate before the days trading got under way. The market was unstable and P wanted to know the negotiating range. "Please wire whether you would accept 40 for delivery over 2 months, if not, longest time limit."
There was no response from D and P later purported to accept the original offer. D claimed that the acceptance was not effective as their telegram had rejected the offer by way of counter-offer.
HELD
This case should be distinguished from Hyde v Wrench (1840). In that case D had offered his estate for £1000. P offered to pay £950. When this was
refused, P then purported to agree to pay the full £1000. P could not claim the estate, because his original counter-offer had put an end to D's offer.
Here, the telegram was not a counter-proposal, but a mere inquiry "which should have been answered" [morally or legally?]. It was not as a rejection of the offer. Pothier has suggested a more subjective view. He has argued that if the offeror changes their mind (but does not communicate this) before acceptance, then at the moment of acceptance, there is no meeting of minds, and therefore no contract (Cooke v Oxley).
However a more objective view is preferable. Once an offer is made, it is taken to be continuing each moment until accepted or withdrawn. The law will regard the intention evidenced in the offer as continuing, until notice of its revocation has been communicated to the other party. As stated in Byrne v Van Tienhoven (1880) "an uncommunicated revocation is, for all practical
purposes and in point of law, no revocation at all".
As no notice of withdrawal was given by the offeror, the P could regard it as a continuing offer, and their acceptance of it made the contract complete.
Seminar Exercise
Tender-invitation to treat
‘We will pay best price for top quality’ pg 58 general proposition
Each person making an offer, the offeror has the authority to accept or reject (spencer). In reference to funds (Carbolic) Sincerity/Seriousness of the person making the offer. No agreement if the terms or the phrases are not clear ch 4 and 5 (issues of uncertainty) Too vague
Mode of acceptance Postal acceptance rule (won’t apply if you take this case into account, because the mode of acceptance is not clear in the advertisement) Manchester council (Communication of mode)
2. Acceptance
Acceptance determines when a contract comes into being. In some cases it may also be necessary to determine where a contract comes into being. The place of acceptance may answer this. Just as with offer, the courts have over the years devoted some attention to the crucial step of acceptance. After all, it is the difference between contract and no contract. In doing so, the courts have developed some pretty precise rules which reflect the assumptions underlying the mechanistic model of offer and acceptance.
An acceptance must be in response to an offer - in other words you cannot accept if you did not know of the offer. This rule does not sit very easily with the objective test, which is supposed not to look into the minds of the parties.
There are very precise rules about how the acceptance must correspond with the offer. Rules of Acceptance
The acceptance:
1. Must be made in reliance of the offer.
2. Must comply with any conditions in the offer. 3. Must be communicated to the offeror. 4. Cannot be a cross-offer or counter offer.
5. Can only be made by the party to whom the offer was made. 6. Must be absolute and unqualified.
An offer becomes a contract only if it is accepted – there are 4 key principles in relation to the concept of ‘acceptance’:
1. Offeror may stipulate what is necessary for an offer to be accepted – subject to statute apply the freedom of contract principle
o Offeror cannot impose a contract onto an offeree 2. Offer and acceptance must exactly correspond
o Attempt to introduce new terms is a counter-offer
o Any departure from the terms of the offer will result in the purported acceptance being ineffective except as a ‘counter offer’
o A counter offer nullifies the offer
3. Acceptance need not be expressed, it may be inferred by the party’s conduct – technique: objective approach (Brogden v Metropolitan Railway Co; carlill v Carbolic Smoke Ball co)
4. Only whom and offer is made may accept it – technique: construe the offer Felthouse v Bindley
Facts John Felthouse discussed with his uncle the prospect of selling his horse. Uncle wanted to pay £30. JF wanted 30 guineas.
1 January 1861 – JF wrote to uncle confirming price of 30 guineas 2 January 1861 – Uncle wrote to JF offering £30 15s, “if I hear no
more about him, I consider the horse mine” Horse was subsequently sold at auction to a 3rd
party Issues Had the horse been sold to the Plaintiff?
Willes J
Uncle had no right to impose upon his nephew the sale of the horse unless he chose to reject his offer
Although the nephew may have considered himself bound, he had not communicated that intention to his uncle, or done anything to bind himself. Silence with nothing else is not sufficient to accept an offer.
Subsequent letter of 25 February – created the contract at that time
Key Point
Mere silence is not sufficient to accept an offer
Outcome Appeal was dismissed – the defendant was not liable (in tort) because he had not sold a horse which belonged to the plaintiff Felthouse could not impose a sale of the horse on his nephew by
requiring him to notify Felthouse if he did not wish to sell on those terms. There was no communication of acceptance before the sale; consequently the nephew was not bound to sell Felthouse the horse on the day of the auction.
Crown v Clarke (1927) 40 CLR 227
Facts Commissioner of Police offered a reward of £1000 for information that would lead to the arrest and conviction of murderers
Treffene and Clarke were arrested and charged. Four days later, Clarke made a statement that led to the arrest of Coulter
Coulter and Treffene were convicted. Clarke claimed the reward Admitted at trial that Clarke was only motivated by clearing his
name
Issues Issue before the HC was whether the Full Court was correct – this depended on whether Clarke could establish a contract
Any such contract would be unilateral
The question of whether Clarke could say that he had done the acts stipulated in the offer of reward as acceptance was raised as superficially this was outlined
Isaacs ACJ
The person accepting must “act on the offer”. As Clarke did not act “on the faith of, in reliance upon” the offer there was no acceptance
Starke J
It is an inference of fact that reliance on the offer is “probable”, but that may be rebutted by evidence
Key points:
Acceptance must be on the faith of / in reliance upon the offer Outcome Appeal was allowed – Clarke was not entitled to the reward
HCHELD:
It was held that Clarke was not entitled to the reward because he did not have the offer in mind and had not acted in reliance on the offer, but rather to secure his own safety from the hand of the law
His action could not be taken as an acceptance of the offer of a reward and he was unsuccessful in claiming the reward
There was no connection with the offer
‘...unless a person performs the conditions of the offer, acting upon its faith or in reliance upon it, he [she] does not accept the offer and the offeror is not bound to him [her]
Butler Machine Tool Co Ltd v Ex-Cell-O Corp
Facts BMTC quoted a price of £75,535 on 23 May 1969. T&Cs where included on back of quotation (included a price variation clause) ECOC responded to quote with their own T&Cs (did not include a
BMTC acknowledged order on 5 June 1969 Issues Lord Denning MR
“In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date”
Noted that in many circumstances where there is a battle of the forms, the contract is formed as soon as the last of the forms is sent and received without objection.
Lawton LJ
Applied the traditional analysis Key points:
In most cases, there is a contract as soon as the last of the forms is sent and received without objection being taken to it
If the difference in terms is so material, the buyer ought not to be able to take advantage of the difference unless he draws it to the attention of the seller
Outcome Sale was on the terms of the buyer. The appeal of the buyers was therefore successful
They were not obliged to pay extra sum claimed because the price variation clause was not a term of the contract
Brinkibon Ltd v Stahag Stahl
Facts SSS offered terms to B on 3 May 1979 (via telex)
On 4 May 1979, B sent a telex to Vienna accepting the terms offered by SSS
Issues Lord Wilberforce
General rule is that a contract is formed at the time that acceptance is communicated to the offeror, at the place where acceptance is communicated to the offeror
Where communication is at a distance, acceptance occurs when the acceptance is put in charge of the post office
Where communication is instantaneous, a contract is formed when acceptance is communicated to the offeree
Telex was determined to be an instantaneous communication (principle also applied to fax messages in Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106)
What is the importance of the Electronic Transactions Act 2000? Outcome Appeal was dismissed on the basis that any contract formed by
the exchange of telexes was formed in Vienna
The postal rule does not apply to direct/instant forms of communication (including telex) – as telex was used here the postal rule did not apply and the contract was formed in Vienna. The Court also observed that even though with telex the
message may not be received by the intended recipient immediately (there may be agents or other third parties who receive the messages to be passed on to the intended recipient) a telex that goes directly from the offeree’s business to the offeror’s business (unlike a telegram which employs the use of a post office) should be treated as if it were an instantaneous communication. If a telex is sent to an office acceptance occurs when the telex reaches the place of business, not when it actually gets to the person it is addressed to.
Other Key Cases: Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR 241
FACTS:
MD called for tenders relating to property. C&G submitted a tender (offer to buy). The tender stated that acceptance was to be notified to the person whose tender was accepted by letter sent ‘by post addressed to the address given in his tender’. MD decided to accept C&G tender and sent their acceptance to the CG's solicitor, which was not the address given in the offer. C&G knew of this acceptance. Was there a contract? In particular, was a mandatory form stipulated for acceptance and, if so, was it complied with?
HELD
The method of acceptance prescribed in the tender was not mandatory - here the offeror was made aware of the acceptance by an equally effective method and thus the acceptance was effective.
Bressan v Squires [1974] 2 NSWLR 460
FACTS:
Squires gave Bressan an option to purchase land. Clause 1 provided that it could be exercised ‘by notice in writing
addressed to me at any time on or before 20 December, 1972.’ On 18 December Bressan posted a notice, addressed to Squires, exercising this option. It was received on 21 December. Was the option exercised?
HELD
The general rule is that ‘a contract is not concluded until acceptance of an offer is actually communicated …’ but that post presented an exception ‘based upon notions of expediency and convenience’. The rule applies whenever the parties contemplated post as a mode – even if just a possible or
permitted mode – of communication. It is ‘not required that it should be within the contemplation of the parties that the action of posting should have the consequence of concluding the contract’ as this would considerably narrow the exception. In this case the parties contemplated the option could be exercised by post. Consequently, prima facie, the exception applied. However, in this case there was further language used in the option that suggested actual notice of acceptance was required before acceptance would occur; consequently P’s case failed.
3. Certainty
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.
The principles applicable to the question of whether parties have entered into an agreement have been examined. However, for any agreement to amount to a contract it must also be sufficiently certain and complete. These two related, but distinct, concepts refer to the requirement that the agreement’s words be sufficiently precise and clear so that the scope of obligations can be ascertained (certainty) and that the key or important parts of the agreement have been set out (completeness): Thorby v Goldberg (1964) 112 CLR 597 at 607. Does the law does not demand absolute certainty and completeness? Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433.
In addition to the issues of completeness and certainty, also deal with situations in which parties have reached an informal agreement on all the terms of the contract but contemplate that a further formal contract will be subsequently be prepared and executed by the parties. These ‘subject to contract’ cases give rise to the question of whether the informal agreement is enforceable even if no subsequent formal agreement is executed.
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.
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.
A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations
Principal cases
The courts are faced with a conflict between:
(1) The desire to avoid making such efforts to uphold an agreement that what is enforced is something that the parties did not in fact agree to: and
(2) The concern to uphold reasonable expectations of parties who believed that they had a binding contract and to avoid ‘the reproach of being the destroyer of bargains (Hillas & Co Ltd v Arcos Ltd)
Requirement that the language used in a contract id able to attribute a sufficiently clear and precise meaning
Key Principle: In order to be enforceable, as a contract an agreement must be sufficiently certain , that is not so vague and uncertain that no meaning can be given to it
The issue lied within the construction of the contract Technique for applying this principle:
- Between uncertainty and difficulty in interpretation or application
- Between material (or essential) terms and non-material (non-essential terms) Materiality depends on the intentions of the party
Severance – a term may only severed only if that would be consistent with the intention of the parties the construction of the contract needs to be clarified to distinguish between the terms of elimination that would affect the bargain, from the severance of other terms Courts are faced with the conflict of:
- The desire to avoid making efforts to uphold an agreement Additional Notes
The fourth requirement of contract formation is that an agreement between the parties must be certain and complete.
An offer will only be effective if it identifies with sufficient certainty the terms of the proposed contract.
The Court will resolve ambiguities and fill gaps in agreements to some extent only where the agreement is sufficiently certain and complete.
This is a matter of some controversy.
A promise may not be enforceable because it is: - Incomplete
- Uncertain - Illusory
The cases reflect the tension between the desire to hold parties to their bargains, and the courts’ reluctance to make a bargain for the parties
Requirement that a contract be certain has three aspects:
The contract must be sufficiently complete so that there is agreement on all terms.
The agreed terms must be sufficiently certain and clear so that the parties can understand their rights and obligations and the court can enforce them.
The promises made must not be illusory. How to save an uncertain contract:
o Where a term is incomplete, uncertain or illusory it may be possible to sever the offending term or part so that the remainder will be binding.
o Where an uncertain, incomplete or illusory provision has been inserted for the benefit of one party, it may be possible to waive compliance with the offending term and enforce the remainder of the contract.
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd
Facts Council entered into a contract to supply ACF with electricity. Clause 5 stated "if the Supplier's costs shall vary in other respects than has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge ...". Council sought to increase its charges, but ACF alleged the clause was void for uncertainty, placing reliance on the term ‘supplier’s costs’. The NSW SC agreed and the Council appealed.
Issues Barwick CJ: Noted that a contract is not automatically void for uncertainty just because it may be construed in more than one way: ‘As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it.' He observed that a ‘narrow or pedantic approach’ to interpretation should not be taken - it is clear that Australian courts will be slow to find an agreement void for uncertainty. In this case there was no uncertainty even though there may be scope for
disagreement about what constitued suppliers costs in individual cases.
Outcome HELD
Barwick CJ: Noted that a contract is not automatically void for uncertainty just because it may be construed in more than one way: ‘As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it.'
He observed that a ‘narrow or pedantic approach’ to interpretation should not be taken - it is clear that Australian courts will be slow to find an agreement void for uncertainty.
In this case there was no uncertainty even though there may be scope for disagreement about what constituted suppliers costs in individual cases.
Whitlock v Brew (1968) 118 CLR 445
that part of the land was to be used for the sale of Shell products and that on taking possession of the land, P would then lease that part of the land at present used for the sale of those products to Shell upon such reasonable terms as commonly govern such a lease. Disputes to be referred to arbitration - failing agreement the arbitrator to be appointed by the President of the Law Institute of Victoria.
- D rescinded the contract and forfeited the deposit - P sued to recover deposit - judgment for D
- P appealed to Full Court - allowed - condition void for uncertainty - not severable therefore the whole condition falls. No consideration for the deposit, therefore
recoverable as money had and received. D appeals to HC Issue Considered the issue of certainty and whether or not a clause in a
contract which was uncertain could be severed from the contract or if it was material and inseverable and therefore made the whole contract invalid.
Outcome HELD
In a majority decision, the High Court (Kitto, Taylor, Menzies and Owen JJ; McTiernan J dissenting) held in favour of Brew. The entire agreement was void because of the uncertainty of Special
Condition 5, there being no evidence of a lease in common use that could be used to establish specific terms on key issues such as the rent and term of the lease.
Uncertain and incomplete promises
Parties must reach final agreement on the essential aspects of the contract before they will be regarded as having entered a contract. It is not enough for them to leave a matter to be agreed upon at a later state ie an agreement to agree. However, if parties provide a mechanism for finalizing terms it will no longer be regarded as an agreement to agree and will be enforceable. 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 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 obligation are carried out by that party, it may be enforceable (Godecke v Kirwan). Breakdown of Mechanism to Complete
The traditional view of contract formation is that the court will not rewrite the agreement for the parties where the parties themselves have failed to agree on all terms. If the parties have
established a mechanism for determining a term and the mechanism fails, the court will not substitute its own view and complete the agreement (Milnes v Gery).
Coal Cliff Collieries P/L v Sijehama P/L (1991) 23 NSWLR 1
Facts Parties entered into a ‘heads of agreement’ to jointly develop mining rights. The agreement anticipated execution of a joint venture in the future. However, they failed to reach final agreement and a few years later negotiations were terminated. Sijehama alleged breach of ‘heads of agreement’ and claimed damages. It succeeded at trial.
Issues Issue of damages payable
Issue for the COA was whether the heads of the agreement was a contract to negotiate a joint venture agreement in good faith.
Considered the issue of certainty and completeness and whether or not an agreement to agree or enter into a contract was enforceable. Outcome A statement in a "heads of agreement" for a proposed complex joint
venture for a coal mine said that the parties "would proceed in good faith to consult together upon the formation of a more comprehensive and detailed Agreement".
Held to be too vague or uncertain to be enforceable.
Kirby P rejected the idea that such contracts were intrinsically
unenforceable and that in some circumstances a promise to negotiate in good faith can be enforceable. It will depend on the construction of each particular contract.
It is established law in England and Australia that agreements to agree or contracts to make contracts where the terms have not yet been ascertained are not legally enforceable. Until the terms are agreed the person can withdraw from the arrangement. May & Butcher -
agreement to agree no contract at all - to be binding there must be a concluded agreement which settles everything which is needed to be settled and those things to be determined should not be subject to agreement between the parties. In Australia this is settled law, see Masters v Cameron - Booker Industries.
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Facts
P entered into a contract with the following term:
“I confirm a salary package of $36,000 per annum, fully maintained company car and the option to participate in the company’s senior staff equity sharing scheme.”
At the time of the offer, no such scheme existed. No such scheme was subsequently brought into effect. When his contract of employment was terminated P claimed
damages for failure to provide him with the option to participate in the non-existent company senior staff equity sharing scheme.
Issues Two types of uncertainty
Vague uncertain and ambiguous clause – can’t be determined what the words in the contract meant
Illusory promise – retains a discretion as to whether to implement the scheme.
Outcome The court will endeavour to uphold the validity of the
agreement, but will not do so where the court is asked to spell out to an unacceptable extent terms on which the parties have failed to agree
Per Kirby P in Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Conditional Promises
Meehan v Jones (1982) 149 CLR 571
Facts J agreed to sell land to M.
Contract was executed subject to the following conditions: M entering into a satisfactory agreement with Ampol
for the supply of a satisfactory quantity of oil.
M receiving approval for finance on satisfactory terms and conditions.
If these conditions were not satisfied by 31 July 1979 then the agreement was null and void.
J claimed the contract was void and on 23 July 1979 sold the property to another person.
Before 31 July 1979, M gave notice that it had made
satisfactory arrangements with Ampol and obtained finance – sought specific perforamance of the contract.
Issue (1) Was the clause void for uncertainty?
performance?
(3) Did the word ‘satisfactory
(4) Attract an objective or a subjective standard?
Wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that promise, the contract is void for uncertainty.
Outcome HELD
An order for a specific performance was made. Therefore, the vendors were required to complete the contract of sale.
Per Mason J – the implied obligation of honesty means there is sufficient certainty as it removes the purchaser’s discretion as to whether finance is actually sought.
The discretion is not unfettered because the Court is capable of determining whether acts of the purchaser are honest. Promise not illusory – contract of sale is enforceable. How to reconcile Placer Developments?
The promise is not unbounded – objective criterion of honesty.
About preliminary agreements and ‘subject to formal contract’ clauses. Three categories of agreements:
(1) Parties have reached a finality in arranging the terms of their bargain and intend to be immediately bound by those terms.(Rossiter v Miller)
(2) Parties have completely agreed upon the terms but nevertheless have made performance conditional upon the execution of a formal document.(Niesmann v Collingridge) (possibly Godecke?)
(3) The parties do not intend to make a concluded bargain at all, unless a formal document is executed. (Summergreene v Parker, Rossiter v Miller) (Masters v Cameron falls into this category)
(4) ‘The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape’
Application:
- ‘Subject to contract’ and ‘subject to the preparation of a formal contract’ and ‘expressions of a similar import’... ‘such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis of for a future contract…’
Application: the formal contract can not only contain the terms agreed on but also new terms as the solicitors see fit.
Masters v Cameron (1954) 91 CLR 353
Facts An agreement was reached to sell a farming property on certain terms. It was stated that, "this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions." On the same day a deposit of £1750 was paid to the vendor's agent. When the purchaser refused to proceed with the sale, both parties claimed the deposit - the
purchaser on the basis that there was no contract, therefore money paid should be returned - the vendor claiming that there was a contract and in the event of a failure to proceed, the money was forfeited. The judge held that there was a contract. The purchaser appealed.
Issue Considered the issue of the intention to enter into a contract and whether or not a statement by a vendor regarding the upcoming sale of her property was sufficient to prove her intention to enter into a binding contract or whether it was a mere agreement to enter into a binding contract at some later date.
Outcome HELD Dixon CJ, McTiernan and Kitto JJ Reasoning
Default interpretation of a ‘subject to contract’ is that there is no intention to be legally bound.
Negotiating parties reserve rights to withdraw might be more than two parties, complex negotiations of large contracts etc. Distinction between conditions to relating to formation and
conditions relating to performance:
A contract may not be formed until a formal document is drawn up and signed; or The obligations in an agreement may not be
performed until some condition is met. Note however that interpretation is a question of fact.
Consideration
Consideration is the enforcement of promises
Only one that has given consideration to the other party’s promise may enforce a contract Promisor makes a promise to the promisee to do something or refrain from doing
something
In order to enforce this the promisee must be able to demonstrate that they have paid or given something in exchange for the promise this “something given in exchange” is the consideration (Beaton v McDivitt 1987)
Bilateral contract – two promisors, each party’s promise is consideration for the other Unilateral contract – one promisor
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. 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.
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.
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.
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.
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.
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).
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. c) Consideration can be nominal
Consideration will be regarded as valid even if it is nominal only. (Eg. Token gesture)
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.
