CONTRACT EXAM NOTES
FORMATION OF CONTRACTS
Consideration
Something must be given in return for a promise to make it binding Consideration is a requirement of enforceability of promises
Except deeds:
S 9 Property Law Act 1969 (WA) Formalities of deed:
Every deed needs to be signed by party bound Attested to by at least one witness not party to deed Not necessary to seal deed (unless corporation) Formal delivery and indenting not necessary
If no consideration ! nudum pactum (naked agreement) Essential Elements of Consideration:
Benefit/Detriment Requirement:
! Promisee must incur a detriment or confer a benefit on the promisor
! Person to whom the promise is made must either confer a benefit on promisor or incur a legal detriment in sense of giving something up or undertaking an
obligation
! Mutual promises = good consideration Bargain Requirement:
! Act relied on as consideration must be performed as agreed price of the promise
! Aust Woollen Mills v Cth:
o AWM purchased wool on Cth ‘promise’ of subsidy – AWM incurred
detriment and Cth benefit – but HC and Privy Council found that Cth policy announcements did not amount to requests to buy wool ! irrelevant AWM acted to detriment in reliance on Cth policy announcements o Act relied on was not a promise – does not satisfy bargain requirement
! Wigan v Edwards: HC decision – Aust Authority
o Edwards agreed to buy house built by builder – purchaser agreed to pay for work – builder built house – purchasers not happy + wanted defects fixed – builder agreed to fix defects – builder did not satisfy purchasers, but was promise to fix extra stuff binding? Yes because they gave up the right to sue him – HC accepted as sufficient consideration
Sufficiency of consideration:
! Consideration cannot be illusory:
o If promisor not bound to perform ! illusory consideration
o Promise accompanied by words giving promisor discretion/option
! White v Bluett:
o Son in debt to father – father said you don’t have to pay if you don’t bore me – executors sought debt + this was deemed illusory
! Past consideration is not good consideration
! Roscorla v Thomas:
o R sold T horse for 30 pounds, after P asked D if horse was “sound and free from vice” to which D said yes – horse was found to not be sound/free from
v and P sought damages for breach of contract – but promise not
enforceable because 30 pounds was past consideration and did not give fresh consideration for promise of soundness
! Exemption ! when promise to pay for past services
! Existing legal duty is not good consideration
! Stilk v Myrick:
o 2 sailors deserted ship + captain said would split deserters fee amongst rest of crew on arrival in London – did not pay crew in London – court upheld they performed existing obligation + nothing extra – no
consideration
! Need to give Fresh consideration:
! Beneficiary provides fresh consideration by undertaking to do something more than he or she originally promised, existing legal duty rule can have no application
! Chappel & Co Ltd v Nestle Co Ltd [1960]:
o Nestle to promote sale of chocolates offered to customers for 6 pence and 3 wrappers would get record by Chappel & Co – C & Co want royalties – consideration was chocolate wrappers – upheld as consideration by court
! Williams v Roffey Bros [1990]
o R held main contract to refurbish 27 flats and entered into subcontract with W to do carpentry – W said price of 20 000 too low to complete – main contract imposed penalty for lateness so R made oral contract to pay 575 extra per flat – R stopped paying and W stopped working – R refused to pay for those done and not payed or money under original contract – got other carpenters in and finished week late –R claimed no consideration – doing work already promised in main contract
o Court found they obviated a dis-benefit ! ensure work done, wouldn’t pay penalty + don’t have to find someone else
! Musumeci v Winadell Pty Ltd (1994)
o Landlord promised to accept less rent from vege shop due to competition decreasing profit – later resiled + wanted full amount – modified Williams v Roffey Bros – in consideration for paying less money, the modifying party would accept reduction of beneficiary’s obligations
o Performance by beneficiary worth more than damages
o Practical benefit should only constitute good consideration if beneficiary’s performance is capable of being regarded by modifying party as worth more than any remedy against beneficiary
Intention
! Binding element of contract
! Ascertained objectively ! would reasonable bystander understand parties intend to bind themselves legally?
! Commercial contracts ! parties assumed to be legally bound
! Social/Fam ! parties presumed not to intend to be bound (person who says it IS has onus to prove intent)
! Ermogenous v Greek Orthodox Community of SA Inc (2002) CLR:
o Archbishop v Church who nominated him – what entitlements did E have – he wanted long service leave – was this usual terms of employment, or diff because spiritual leader – whether intention to create legal binding contract of employment – E had burden of showing intention
! To ascertain parties objective intention – what person would reasonably understand arrangement as
! Look to express words, subject matter of agreement, status/relations of party, surrounding circumstances
! Placer Developments v Cth:
o Commercial agreement ! party saying no intention has to prove it
o Non commercial/social/fam ! party seeking to show intention must prove it
Certainty + Completeness
! Factory 5 Pty Ltd (in liq) v State of Victoria (No 2) [2012]
o FC dismissed Factory 5 appeal - F signed letter of agreement with Melb Cth Games Corp for appointment as official concessionaire to sell Cth Games merchandise – but Court found no contract between parties – uncertain/not completed ! void
! Biotechnology v Pace (1988) NSWLR
o Pace (scientist) entered into contract with B – salary, car, opportunity to participate in senior staff equity scheme – attractive component of package – contract ended and claim for damages of salary outstanding and value of option to join share scheme
o Conception of reasonableness, how much meaning was there in that clause if there was no equity sharing scheme yet in existence?
! Incomplete agreements:
! Parties may not intend agreements to be final and binding
! May lack essential terms
! May be agreements to agree on something in future
! No existing agreement to mediate/negotiate
! Distinguish between conditional (no contract unless x happens) and incomplete
! Complete and binding if terms are certain + intention agreement is final
! Not binding if ‘subject to contract’
! Masters v Cameron (1954) CLR:
! Masters buying farm – agreement subject to formal contract – purchaser entered financial difficulties – not bound
! HC set out 3 categories of ‘subject to contract’:
1. Parties say subject to contract reflects agreement on terms and intention to be immediately bound even if replaced by more detailed contract later 2. Agree to all terms + immediately bound but performance condition on
entering formal contract
3. No intention to make binding agreement until formal contract
! This was number 3 case –no formal contract so not bound
! Godecke v Kirwan (1973) CLR:
o Parties indicated potential future terms – purchaser would execute further agreement to be prep by vendor’s solicitor – material facts would be settled by 3rd person – agreed how terms would be made – agreement complete
! Aiton Aust v Transfield (1999) FLR:
o Clause 28 of construction contract set out dispute resolution procedure – obligation to negotiate in good faith/mediate – issue on what good faith means – Court held obligation like this can be sufficiently certain and not illusory – but lacked sufficient certainty – no provision for payment of mediator’s costs.
! Uncertain Terms
! Meehan v Jones (1982) CLR
o J agreed to sell M land on which was oil refinery – subject to purchaser receiving finances – ‘on satisfactory terms and conditions’ – purchaser could determine this phrase – not illusory because obliged to act honestly in making determination
! Hall v Busst (1960) CLR
o Clause for purchasing Qld island – purchase price plus ‘reasonable sum to cover depreciation of all buildings and other property on the land’ – void for uncertainty – price must be fixed with certainty
! Whitlock v Brew (1968) CLR
o Contract for sale of land – clause to be leased back to oil company ‘upon such reasonable terms as commonly govern such a lease’ – void for uncertainty because word ‘common’ too vague
! Council of Upper Hunter v Aust Chilling and Freezing Co (1868) CLR
