S: com3 2002Sem 3just2037 (bl108)site webfarmmodule · Brogden v metropolitan Railway Company (1877) 2 App Cas 666 Case law Felthouse v Bindley (1862) 11 CB (NS) 869 142 ER 1037 Carlill

Learning outcomes

By the end of this Module you will be able to:

discuss the legal components that are necessary to form a legally binding contract

analyse the relevant case law and understand the role it plays in determining the existance of a contract.

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Click play for information about this module from your course coordinator, Mary Toohey.

Reading

Australian Business Law - Chapter 5

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Introduction to contracts

A contract is a legally enforceable agreement. This is an agreement which can be enforced in a court of law. The law of contract encompasses many areas of commercial law for example, agency, partnership and banking.

The law of contract is traditionally based on common law and precedent however legislation such as the Goods Act and the Trade Practices Act (TPA) has had a significant impact on the common law principles.

Must Every Contract be in Writing?

No unless there is a specific requirement under either the rules of common law or equity or statutory law. Some contracts need only be evidenced in writingwhereas others must be in writing. Once evidenced in writing, the general rule is that no oral evidence can be raised in court to vary, contradict or change the written document, however where there is ambiguity or uncertainty in the contract it will be possible to vary this rule. See your text for a list of examples of contracts that are required to be in writing to be legally valid.

Formal contracts

Formal contracts (or deeds)are documents that create an obligation between the parties without the elements of the traditional contract being present. eg trust deeds, documents evidencing a gift.

Formal contracts are not generally found in business law and are not the focus of your studies in this course. In contrast to "formal" contracts, the term "simple contracts" is sometimes used to distinguish the form of contract used in business agreements.

The elements of a contract

Reading

Latimer 5-030

Reading

Latimer 5-040

Reading

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The elements of a contract are like a jigsaw puzzle; if one of the pieces is missing, then you do not have an enforceable agreement. So, it is very important that in the early parts of your contract law 2 studies you isolate each of these elements.

The elements of an enforceable contract are:

1. intention to create a legal relationship

2. agreement

3. legal capacity

4. consideration

5. consent

6. legality of object.

This module explores these elements and lists relevant cases for you to use as a reference.



Latimer 5-020

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Intention to create a legal relationship

The element of intention is based upon two presumptions.

The first presumption: commercial agreements are presumed legally enforceable and the parties intend to be legally bound, unless there is evidence to the contrary.

If there is evidence to rebut the presumption that legal relations were intended then the courts will not enforce the agreement.

In your readings you will find in some cases that the courts have decided on the basis of the evidence that the parties did not intend to be legally bound, despite the fact the agreements were of a commercial nature.

The second presumption: if the agreement is of a social, domestic or voluntary nature, the parties do not intend to be legally bound. However, these presumptions can be rebutted by evidence to the contrary.

In your readings you will see that in some cases the courts have considered that the seriousness of the consequences to the parties is so great, that even though the agreement is of a social or domestic nature, the parties must have intended to be legally bound by that agreement.

Reading

Latimer 5-050--5-090

Case law

Rose & Frank Company v Crompton & Bros Ltd [1925] AC 445

Kleinwort v Benson Ltd v Malaysia Mining Corporation Berhard [1989] 1

WLR 379

Hurley v McDonald’s Australia Ltd (2000)ATPR 41-741

Carlill v Carbolic Smoke Ball Co.[1892] 2QB 484

Case law

Balfour v Balfour[1919] 2 KB 571

Cohen v Cohen(1929) 42 CLR 91

Merritt v Merritt [1970] 2 ALL ER 760

Wakeling v Ripley(1951) 51 SR (NSW)183

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Dietrich v Dare(1980) 54 ALJR 388

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Agreement

Each contract must consist of a clear offer and an unconditional acceptance of the terms of the offer. Without these, there will be no agreement and no contract.

Offers are a promise to be bound providing terms of the offer are met ie. the offerer is the person making the offer, the offeree is the person to whom the offer is made.

Offers may be confused with other pre-contractual negotiations, such as an invitation to treat, a supply of information or a bid. These can often appear to be an offer, so care must be taken to identify the actual offer.

Offers must be distinguished from:

1. an 'invitation to treat' which is part of the preliminary negotiations and occurs prior to the formal offer being made.

2. a supply of information in negotiations prior to a contract being entered into must not be construed as an offer.

3. auction advertising and auctioneers comments: the bid at an auction is an offer. In the tender process the request for tenders is an invitation to treat. The tender is the offer.

Rejection, revocation, lapse and termination of an offer

Reading

Latimer 5-140--5-210

Case law

Partridge v Crittendon[1968] 1 WLR1204

Pharmaceutical Society of Great Britain v Boots Cash

Chemists (Southern) Ltd[1953] 1QB 401

Spencer v Reading[1870]LR 5CP 561

Case law

Harvey v Facey[1893]AC 552

Reading

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Offers can be rejected by the offeree. A rejection may be outright or it may be in the form of a counter offer.

Note that inquiries from the offeree to clarify the offer should not be construed as a rejection.

Offers can be revoked or withdrawn by the offeror prior to acceptance.

However, the revocation must be communicated to the offeree before acceptance of the offer. The communication can be made by the offeror or by a third party considered to be a reliable source.

Offers can lapse through time, either a set time, or if no time period is set on the life of the offer, the courts may have to determine what is ‘reasonable’ in the circumstances.

Offers can lapse because of an unfulfilled condition of the offer.

Generally the death of the offeree or the offeror will terminate the offer.

Latimer 5-300, 5-350-5-390

Case law

Hyde v Wrench 1840 49ER 132

Case law

Stevenson; Jacques & Co v McLean (1880) 5 QD 346

Case law

Byrne & Co v Van Tienhoven (1880) LR 5 CPD 344

Case law

Dickinson v Dodds(1876) 2 Ch D 463

Case law

Ramsgate Hotel Co Ltd v Montefiore (1866) LR 1Exch 109



An option

The offeror and the offeree may enter into an agreement to keep the offer open for a period of time. This agreement is a separate contract often referred to as an option.

In these circumstances the offeror cannot revoke the offer during the period of the option.

Acceptance

Offers can be accepted by the offeree thus creating an agreement between the parties.

Acceptance is the unconditional positive response to the offer by the offeree, who must have heard and be responding to the offer. There is no agreement without acceptance and only the offeree can accept.

Acceptance must be in reliance on the offer.

The acceptance must be unconditional and clear.

Reading

Latimer 5-365

Case law

Watson v Phipps (1986) 60 ALJR 1

Reading

Latimer 5-220---5-310

Case law

Scammell and Nephew Ltd v Ousten (1941) AC 251

Hillas v & Co Ltd v Arcos Ltd (1932) All E

Case law

R v Clarke (1927) 40 CLR 227



Acceptance can be expressed or implied. Sometimes the conduct of the parties will lead to the implication that an agreement exists.

Acceptance must be communicated to the offeror. The only exceptions to this rule are:

1. if the offeror has made it clear that communication of acceptance is unnecessary. This usually occurs when acceptance is in the form of actions or conduct.

2. past dealings or industry custom indicate communication unnecessary.

3. the conduct of the offeree clearly indicates acceptance.

4. unilateral contracts. Note: Rumours of acceptance are not considered to be communication of acceptance.

The moment of acceptance can be of vital importance to the existence of the contract and may depend on the form of acceptance.

If there isn’t any method of communication of acceptance specified in the offer then the method of acceptance should be similar to the offer.

If the offeror specifies a form of acceptance, then that method must be used or something similar. An example of this would be if you emailed a friend saying:

Masters v Cameron (1954) 91 CLR 353

Case law

Brogden v metropolitan Railway Company (1877) 2 App Cas 666

Case law

Felthouse v Bindley (1862) 11 CB (NS) 869 142 ER 1037

Carlill v Carbolic Smoke Ball Co.[1892] 2QB 484

Case law

Powell v Lee (1908) 99 LT 284

Reading

Latimer 5-320--5-330

Case law



”Do you want to buy my car? Please email me.” In this case, it is expected that the person accepting will use email, or a similar method of communication.

The offeror may specify one method of acceptance as the only one that will be accepted. This may become a condition of the offer and the offeree is bound to comply with the conditions in the offer.

If the parties are using instantaneous forms of communication, the acceptance must be received or heard by the offeror to be effective.

Where the both parties are aware that the post will be used as the method of communicating the acceptance, then the moment of acceptance will be when the letter is posted. (The Post Office is deemed to be the agent of the offeror) This is often referred to as the “Postal Rule”.

Acceptances sent by facsimile machines or email will not be effective until the acceptances are received by the offeror. If the acceptance is by email it becomes effective when the offeror logs into the system.

Agreement and the Electronic Transactions Act 1999 (Clth)

The Electronic Transactions Act 1999(Cth) provides a regulatory framework that supports the use of electronic transactions. Most States have passed or are considering mirror legislation e.g. The Electronic Transactions (Victoria) Act 2000. This legislation is based on the UNICITRAL MODEL LAW (United Nations Commission on International Trade Law).

The legislation provides that transactions are not invalid merely because electronic forms of communications were used by the parties. If a document is required to be in writing, then this requirement is satisfied if the information is provided in electronic form. The legislation also provides that where a signature is normally required an alternative form of verification of the party’s identity will be accepted.

This legislation ensures that a contract that is entered into by electronic means is enforceable. The legislation is not designed specifically for contracts, however S.14 concerns:

the time of receipt of an electronic document and the location of the “offer” and “acceptance” and therefore is pertinent in determining the time and place of the formation of the contract.

Case law

Entores Ltd v Miles Far East Corporation [1955]2QB 327

Reading

Latimer 18-060



Section 14 (1) states that:

"a message is sent once it enters a single information system outside the control of the of the originator."

S.14(3):

"if the addressee of an electronic communication has designated an information system for the purpose of receiving electronic communications then unless otherwise agreed between the parties the time of receipt of the electronic communication is when it enters that information system."

S.14(4):

" if the addressee of the electronic communication has not designated an information system for receiving electronic communications then unless otherwise agreed between the parties then the time of receipt of the communication is when it comes to the attention of the addressee."

S.14(5)& (6):

the electronic communication is deemed to be dispatched from where the originator has it’s place of business or if an individual their normal place of residence and the electronic communication is received at the place where the addressee has its place of business or if an individual, his/her normal place of residence.



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Capacity

Parties to the agreement must have the capacity to contract.

The concept of capacity refers to the contracting parties be able to form an intention to be bound by the agreement. A party to an agreement who is under 18 years old or who is mentally ill, or under the influence of drugs/alcohol may not have the capacity to contract.

Minors' contracts refer to contracts entered into by people under 18 years of age. Contracts for necessary items such as food, clothing and shelter are valid and enforceable against the minor. The courts take into account the minors' needs and standards of living in determining what is necessary.

Contracts for employment, education and training are also enforceable against the minor if it is for the minor’s benefit.

Contracts for all other goods and services are void.

Contracts that result in a minor having an interest in property or impose an ongoing obligation such as leases are voidable.

The Supreme Court Act 1986 (Vic) provides that all contracts with minors that result in the minor having to repay money are void and will remain void even when that person turns 18 (s 49 & 50).

If one of the parties to the contract is mentally ill or intoxicated then the contract can be voided if it is proven that one party did not understand what they were doing at the time of the contract and the other party to the contract was aware of this.



Reading

Latimer - 5.510--5.550

Case law

Steinberg v Scala(Leeds)Ltd [1923]2Ch 452

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Consideration

Consideration is the value given by the offeree (usually referred to as the promisee when discussing consideration) for the promise/ offer received from the offeror (usually referred to as the promisor). Consideration is described in the case of Curie v Misa:

Consideration may be money but can be a promise to act, or do something, or to refrain from certain actions. It can be a benefit flowing to the promisor or to a third person at the promisor's direction, or a detriment to the promisee.

Consideration cannot be something that has already occurred prior to the promise or offer. This situation is often referred to as “past consideration”.

In some circumstances, the past consideration will be valid consideration when actions forming the past consideration were done at the request of the offeror.

Therefore, consideration usually cannot be “past consideration" (with exceptions) but consideration can be “executory” , ie a promise in return for a promise. For example the contract may be agreed today but completed at a later date. John may agree to buy your car but you both agree not to exchange the money and the car until next week. Consideration can also be "executed". An executed contract is one that is agreed upon and completed at the same time. For example if you advertise a reward for the return of your lost dog, and the dog is subsequently found by someone, the contract is executed at the time the dog and the reward are exchanged.

Reading

Latimer - 5-400--5-430

Curie v Misa (1875) LR 10 Ex 153: “some right, interest, profit or benefit accruing to one party,

or some forbearance, detriment, loss or responsibility given,

suffered or undertaken by the other”

Case law

Lampleigh v Braithwaite(1615) 80 ER 255

Roscorla v Thomas (1842) 3 QB 234

Case law

Re Casey's patents Stewart v Casey[1892] 1Ch 104

Pao On v Lau Yiu Long [1980]AC 614

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Sufficient consideration

Consideration need not be “adequate” but should be “sufficient”. The words “adequate” and “ sufficient” seem to be similar but are entirely different in the context of consideration. The statement that consideration need not be adequate refers to the relative values of the promise and the consideration ie if goods are sold well below their value it is irrelevant for the purposes of consideration. For example, if I sell my car at a very low price, that’s my concern. Contract law is not concerned with the amount of money for which I sell my car.

The statement that consideration should be sufficient refers to the actual existence of consideration. Consideration will not be sufficient if the actual consideration is already a public/legal duty or an existing contractual duty that has to be performed by one of the parties to the contract. Sufficiency may also be explained in terms of doing something more than what was expected or required by an existing duty. For example in one of the cases, you will read about the police carrying out duties above and beyond what they were expected to do. The courts decided that regular police duties were not consideration in this particular instance but performing extra services was sufficient consideration.

Note: However a moral obligation is not considered sufficient consideration. An example of this is in the case of an orphan who promises to repay her guardian for the money he spent raising her. In this case, the courts deemed that paying back the money was a moral obligation and there was not sufficient consideration.

Reading

Latimer 5-440--5-470

Case law

Chappell & Co Ltd v Nestle Co Ltd [1960]AC 87

Case law

Glasbrook Bros.Ltd v Glamorgan County Council [1925]AC 270

Stilk v Myrick (1809) 170ER1168

Hartley v Ponsonby(1867)119ER 1471

Williams v Roffey Bros & Nicholls Ltd [1991] 1QB 1

Case law



Sufficiency

Sufficiency is also an issue with agreements to repay debts where a lesser sum of money is accepted by the creditor in full satisfaction of the debt.

Generally there will not be sufficient consideration for the second agreement to accept the lesser amount. If the creditor accepts the lesser sum of money in full repayment of a greater amount, there isn’t any “new” consideration for the new agreement, the repayment is only a part of the original debt agreement, therefore the creditor may claim the oustanding amount despite the second agreement.

For example, if someone owes you $500, and then offers you $250 in full repayment, saying that that was all he could afford, you may be disappointed but happy that at least you’re recovering some of the money. However, what is the consideration for this second agreement? Is it legally enforceable? Over the last couple of hundred years the courts have deemed that the second agreement would not contain sufficient consideration and is not enforceable. Therefore you, as the creditor, may demand the remainder of the money.

The problems associated with this rule can be overcome by the debtor paying a smaller amount plus adding something of value to the repayment or alternatively paying the debt earlier than the due date requires. Thus the debtor is supplying some new consideration to support the new agreement to pay the lesser amount of the debt.

If a third party has entered into an agreement to pay a lesser amount in full settlement of the debt the courts may accept this as sufficient consideration.

The Courts may consider it fraud on the third party if a creditor asked for the remainder of the amount.

Eastwood v Kenyon 113 ER 482

Reading

Latimer 5-480, 5-490

Case law

Pinnel’s case(1602) 119ER 237

Foakes v Beer [1881-1885] ALL ER 106

Case law



The Estoppel rule

The rule concerning sufficiency and Pinnel’s case may lead to inequities in situations where the courts would not support agreements entered into in fair and reasonable circumstances because of a lack of sufficient consideration. Parties who freely enter into agreements may escape their promises even when the other party in the agreement has acted on the basis of the promises.

The most notable way around this problem is the promissory estoppel rule.This rule was traditionally used as a defence to prevent someone going back on their promise after the other party has acted in reliance on that promise and suffered detriment.

Consideration and privity of contract

Consideration must flow from the offeree/promisee but can move to the offeror OR a third party.

Only the parties to the contract have legal rights under the contract so third parties may receive benefits from the contract but they cannot sue or be sued on the agreement. This issue is often referred to as 'privity of contract'.

Hirachand Punamchand v Temple[1911] 2 KB 330

Reading

Latimer 5-485

Case law

Central London Property Trust Ltd v High Trees House Ltd [1947] 1KB

130

Waltons v Maher (1988) 164 CLR 387

Commonwealth of Australia v Verwayan (1990)170 CLR 444.

Reading

Latimer 5-500, 6.260-6.270



If there are joint promisees then consideration only has to be provided by one of them.

Exceptions to the privity of contract rule exist in common law and in statute.



Beswick v Beswick [1968]AC 58

Case law

Coull's Bagot's Executor and Trustee Co Ltd Ltd (1966-67) 119 CLR 460

Case law

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165

CLR 107

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Case law



Consent

Parties to an agreement must understand the transaction and their position in the contract.

If there is:

mistake

misrepresentation

undue influence

duress

unconscionability, or

non est factum

present before or at the time of the agreement, the contract may be declared void/voidable as at least one of the parties has not given true consent if it is not aware of the truth surrounding the contract.

Mistake: The word “mistake” in common law is interpreted differently from common usage, the courts do not set aside a contract merely because one of the parties has erred in entering the contract. The rules relating to this area ensured that it was traditionally very difficult to obtain a remedy on the basis of mistake. The Trade Practices Act now provides more accessible remedies to many of the traditional areas of consent.

There are three types of mistake recognised by the common law-

1. Common mistake- Common mistake occurs when both contracting parties make the same mistake about some fundamental matter relating to the contract, usually the mistake concerns the existence of the subject matter.

2. Mutual mistake- mutual mistake occurs when the contracting parties are at cross purposes about a fundamental part of the contract.

Reading

Latimer 5-610--5-650

Latimer 5.640

Latimer 5-660, 5-670,5-675

Case law

McRae v Commonwealth Disposals Commission (1950) 84CLR

377

Coutrier v Hastie 10ER 1065

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3. Unilateral mistake - Unilateral mistake occurs when one party makes a fundamental mistake when entering the contract and the other party is aware that a mistake has been made and attempts to enforce the agreement.

The issue of mistaken identity is generally discussed under the heading of unilateral mistake. Mistaken identity is significant where one of the contracting parties is under a mistaken impression as to the identity of the other contracting party and the identity is a fundamental issue in the agreement. The cases relating to mistaken identity are somewhat confusing and lack some logical sequence. However, cases that do indicate the basic legal principles are Cundy v Lindsay and Lewis Averary.

Misrepresentation:

Misrepresentation is a complex area involving common law and the Trade Practices Act (TPA).

Misrepresentation refers to untrue claims made by one of the contracting parties prior to or at the time of the contract. Numerous avenues are available to contracting parties who consider that they have been induced to enter a contract

Case law

Raffles v Wichelhaus(1864) 159 ER 375

Tamplin v James (1880) 15Ch D 215

Case law

Hartog v Colin and Shields [1939] 3All ER 566

Taylor v Johnson(1983) 1151 CLR 422

Case law

Cundy v Lindsay [1874-1880] All ER Rep 1149

Lewis Averary[1972] 1QB 198

Reading

Latimer 5-700-5-705

Latimer 5-700



on the basis of an untrue representation.

1. If the representation is a term of the contract then the aggrieved party may sue for breach of contract. This is also examined in Terms and Conditions within Module 4.

2. If the misrepresentation is fraudulent then the innocent party can sue in the tort of deceit and seek damages or restitution. It must be proven that the representation is false, that it is a misrepresentation of fact and not of opinion or law and was made with the intention of inducing the other party to enter the contract. The misrepresentation must actually be one of the factors that induced the party to enter the contract.

Silence may constitute misrepresentation in two situations. The first is where the representation is true but creates a false impression because the full facts are not told and secondly where the person making the representation believes it to be true, but later finds out it was untrue. Not revealing the truth in these circumstances is regarded as a fraudulent misrepresentation.

3. If the misrepresentation is “actionable” ie fundamental to the contract and induced the other party to enter the contract, then the contract may be rescinded.

4. If the misrepresentation is negligent or innocent, there is generally no remedy unless the misrepresentation is a term of the contract. If there is a ‘special relationship’ between the contracting parties the party that has suffered damage as a result of the negligent misrepresentation can sue for damages under the principles set out in Hedley Byrne v Heller (module 2).

5. The TPA (1974) includes provisions that may provide remedy to an innocent party who has suffered as a result of negligent innocent or fraudulent misrepresentation. S.52 misleading and deceptive conduct, s.51AA-51AC unconscionable conduct, s.53 false or misleading representations.

6. Other areas of contract law may also impact on the parties where a misrepresentation occurred in the course of the contract being made eg mistake, common law unconscionability or collateral contracts.

Undue influence

Undue influence occurs when one of the contracting parties exerts such a degree of influence over the other contracting party that the latter party is unable to exercise its judgement freely. If undue influence can be proven then the courts may grant rescission of the contract.

The common law recognises two situations where undue influence occurs. The first is where there is no particular relationship between the contracting parties

Reading

Latimer 5-710



and in these cases the party alleging the undue influence must prove that they were unduly influenced to the extent that they could not use their free judgment.

The second situation occurs when there is a relationship between the parties that creates the presumption of undue influence by one of the parties. Some of these relationships include that of parent and child, solicitor and client. In these cases the party in the stronger position must prove that they have not exerted undue influence on the other party.

Duress

Duress refers to threats of physical force or coercion used by one contracting party against the other party, their family or property, with the purpose of forcing a contract. These contracts are voidable at the option of the party suffering the duress. Common law now also recognises economic duress as a ground for avoiding contracts. Economic duress occurs when one party is coerced into a contract by threats amounting to extreme economic pressure.

Unconscionable conduct

Unconscionable conduct refers to a pre-contractual situation in which one of the contracting parties has superior bargaining power and the other party has some ‘special disability’. The ‘special disability’ may be age or poor language skills. The conduct of the party in the superior bargaining position leads to a contract which is harsh and unconscionable. In the case of Commercial Bank vs Amadio, the bank behaved in an unconscionable manner towards an elderly couple, who neither speak English very well, nor had business training.

Case law

Johnson v Buttress (1936) CLR 113

Lloyds v Bundy [1975] QB 326

Case law

Allcard v Skinner (1887) 36 Ch D 145

Reading

Latimer 5-720 --5-730, 5-690

Case law

Commercial Bank v Amadio (1983) 151 CLR 447



Non Est Factum

Non est Factum refers to a claim made by a person who has signed a document believing it is entirely different to what they have actually signed. The court will set aside the document if it is proven that the signatory was under some disability that prevented them from reading or understanding the document.

Legislation and Trade Practices Act (TPA)

The effect of this section is to extend the remedies available under the Trade Practices Act 1974 to cases where the courts have held that conduct is unconscionable according to common law principles, eg the remedy of damages can now be awarded in cases of unconscionable conduct (s.82); prior to the inclusion of s.51AA in the TPA, the innocent party could only claim rescission of the contract.

The Trade Practices Act 1974 s 51 AAB - 51AC prohibits corporations engaging in unconscionable conduct in specific circumstances.

S.51AB prohibits a corporation in trade or commerce in connection with the supply or possible supply of goods and services to consumers to engage in

Louth v Diprose (1992) 175 CLR 621

Begbie v State Bank of New South Wales Ltd(1994) ATPR 41-288

Case law

Petelin v Cullen(1975) 132 CLR355

Reading

Latimer 5-755

Latimer 5-755--5-756

Note:Legislation now provides statutory relief in traditionally common law areas. The Trade Practices Act 1974

Part IVA is titled ‘Unconscionable Conduct’

S. 51 AA (1) states that:

“a corporation must not in trade or commerce engage in

conduct that is unconscionable within the meaning of the

unwritten law, from time to time, of the States and

Territories”



unconscionable conduct. The goods must be of a kind ‘ordinarily acquired for personal domestic or household use’.

S.51AB sets out a number of factors to be considered when determining if the conduct of the corporation is unconscionable. This section is now mirrored in the Fair Trading legislation that exists in each state. Fair Trading legislation is needed in each state because the TPA only deals with companies and individuals trading interstate.

S.51AC has similar unconscionable provisions that are aimed at transactions occurring between large business and small businesses. Although the sections are similar, s.51 AC only operates where the goods and services are acquired for the purpose of trade and commerce and the value of the goods and services is less than $ 3 million. S.51 AC also sets out a list of matters that may be taken into account when determining whether the transaction is unconscionable.



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Legality

Contracts may be void if their purpose or intent is illegal - Contracts are illegal or void by statute or common law.

Illegal by Statute

Contracts are illegal by statute where the wording of the statute clearly indicates that the purpose of the contract is illegal. This situation is described as a contract that is “illegal as formed”. An example of this could be a contract to export live native animals.

If the purpose of the contract is legal but it is “performed illegally” it may still be declared illegal. However, if the illegal performance is incidental to a contract which has an otherwise legal purpose, then the courts will enforce the agreement. An example of this could be a taxi containing six students, travelling from the airport to the city. The taxi is licensed to carry passengers, so the contract is legal. However, the contract is performed illegally, as the driver is only licensed to carry four passengers. Therefore the traffic authority may book the driver for breach of licensing laws but the students must pay the fare for the trip, as overloading the taxi is incidental to the travel agreement.

Contracts declared void by statute refer to contracts that breach specific statutory guidelines and, as a result, the statute declares the contract or terms of the contract void and unenforceable.

Illegal by Common Law

Contracts may also be declared void by common law. These types of contracts or their purpose are not specifically prohibited in legislation but are regarded as being harmful to the community and therefore should not be enforced by the courts. Contracts in this category include contracts for the commission of crime, tort or fraud, contracts which may lead to corruption of public figures and contracts that may prejudice the administration of justice.

Contracts in restraint of trade are an example of contracts that can be declared void by common law.

The text identifies three categories of restraint of trade agreements effected by this rule.

1. Agreements between employee and employer:

employment contracts may contain clauses that limit the rights of the employee to work for the employer's competitors after leaving the current employment or limit a former employee’s rights to set up a business in competition to a former employer. These clauses are designed to protect the rights of the employer against employees who

Reading

Latimer 5-820--5-835

Latimer 5- 850

Latimer 5- 860-- 5-885

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may access confidential business information. However, the rights of the employee to utilise their skills and seek suitable employment must also be considered. Generally the courts enforce the contract if it is reasonable, taking into account the interest of all the parties, including the public interest.

2. Agreements between buyers and sellers of business and between partners:

Restrictive clauses may be inserted in contracts for the sale of a business that prevent the seller establishing a similar business and competing with the purchasers of the original business.

Similarly partnership agreements may contain contain clauses that prevent former partners competing with the partnership.

3. Agreements between manufacturers and retailers:

Agreements which regulate particular industries and pricing policy in the industry were generally enforceable at common law, unless it impacted unreasonably on one of the contracting parties or the public.

The Trade Practices Act 1974 Pt IV now deals specifically with restrictive trade practices.

NOTE: Severance - Parties to a contract may ask the Courts to severe or take out the offending clause or term rather than voiding the complete contract. The Courts will only do this if the contract is able to continue and stand on its own without the offending items. Severance will only occur in circumstances where it is possible for the contract to continue without the offending clause.

Case law


377

Buckley v Tutty (1971) 125 CLR 353

Adamson v New South Wales Rugby League Ltd (1991) 31

FCR 242

Case law


377

Peters(WA) Ltd v Petersville Ltd[1999] FCA 1245

Esso Petroleum Co Ltd v Harper's Garage (Stourpont) Ltd

[1968] AC 269

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Review questions

Download the review questions in Microsoft Word format.

1. Must all contracts be in writing?

2. Which contracts must be in writing to be legally valid?

3. What are the elements of a contract?

4. Explain the presumptions concerning the legal intention of the parties to a:

social agreement

commercial agreement

5. Can the contracting parties rebut these presumptions?

6. Define an offer.

7. Distinguish an offer from similar communications that are not recognised for the purposes of a legally enforceable agreement.

8. What are the possible outcomes of making an offer?

9. Define the term acceptance as it is used in the law of contracts.

10. Must the acceptance be in writing or verbal?

11. Does the acceptance have to be communicated to the offeror?

12. What method of communicating the acceptance should be used by the offeree?

13. When is the moment of acceptance?

14. What is the 'postal rule'?

15. How does contract law attempt to protect minors ?

16. Define consideration.

17. Which contracting party provides the consideration?

18. Does the benefit of the consideration have to move to the offeror/promisor?

19. Must consideration be money or the value of goods?

20. What is 'past consideration'?

21. Give examples of executory and executed consideration.

22. What do the terms 'adequacy' and sufficiency refer to in contract law?

23. Explain the rule in Pinnel's case.

24. Explain the 'promissory estoppel rule' and discuss its impact on consideration.

25. Discuss the facts of Waltons v Maher(1988) CLR 164 and explain how the promissory estoppel principles were extended in this case.

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26. What does the term 'consent' refer to in contract law?

27. Describe the three types of mistake recognised by common law.

28. What remedies are available to a contracting party who is subject to misrepresentations, prior to, or at the time of, entering the contract.

29. What must be proven to succeed in a common law action for fraudulent misrepresentation?

30. What provisions does the Trade Practices Act 1974 contain to deal with misrepresentations?

31. Explain the principles of undue influence.

32. Discuss case examples of unconscionable conduct.

33. The Trade Practices Act 1974 Pt IV contains sections that prohibit unconscionable conduct. Explain the operation of the relevant 'unconscionable conduct' sections.

34. In what circumstances will contracts be voided on the grounds of illegality?

35. Distinguish between contracts that are 'formed illegally' and 'performed illegally'?

36. Outline the three categories of contracts that are in restraint of trade and therefore may be declared void under common law.



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Tutorial questions

Tutorial question 1

Ruth and John's engagement

John and Ruth became engaged. Their parents

were not acquainted with one another but were

people of some note in the local community. A

large and elaborate engagement party was desired

by all concerned. Over drinks at his club, John's

father offered to pay for the food and drinks for the party if Ruth's father

would hire a room, provide music and make all the necessary

arrangements.

Ruth's father agreed, and placed all the necessary orders, including

those for the food and drinks. The event was not a great success, mainly

because Ruth's mother was heard to say that, if she had her way, Ruth

could have done far better for herself.

Ruth's father settled all the bills, but when he approached John's father,

for the cost of the food and drinks, it was refused in an abusive manner.

Can Ruth's father sue John's father for the payment of food and drink at

the engagement party?

Go to the Tutorial Answers in this Module for the answer to this

question.

Tutorial question 2

Reward for lost watch

Henrietta Marple lost her favourite watch, which

was an expensive Swiss watch. She placed an

advertisement in the newspaper offering a

reward to whomever found her watch.

Sam Bean found Henrietta's watch and from the engraving on the back

was able to return it to her. The following day, Sam saw the

advertisement in the newspaper and claimed the reward from Henrietta.

Henrietta refused to pay.

Sam approaches you and wishes to know whether a contract exists

between himself and Henrietta. What do you think Sam's legal position

is?


question.

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Tutorial question 3

A raspberry order

The following communications passed between

World Imports Limited, an Australian company,

and China Exports Limited, a company carrying on

business in Shanghai:

1. Cable dated November 1, and delivered on November 2, from

World Imports Limited, "Please quote us price for 1 tonne of

canned raspberries"

2. Letter dated November 6, and delivered on November 10, from

China Exports, "We can supply canned raspberries at $A150

per tonne. Cans are in 500g, 1kg and 2 kg sizes and your order

would consist of a fair distribution between these sizes.

Delivery would be in equal monthly shipments commencing on

February 1".

3. Cable dated November 11, and delivered on the same day,

from World Imports Limited, "Your offer to supply 1 tonne

canned raspberries accepted. Formal order follows".

4. Order form dated November 12, and delivered on November

17, from World Imports Limited order 1 tonne, setting out the

terms given in paragraph (2) above and containing the

following condition printed at the foot of the form:

"All orders course to the standard contract terms of

International Fruit Trading Association".

5. Cable dated November 14, and delivered November 15, from

World Imports Limited, "Re raspberries reduce order to three

quarters tonne/otherwise same terms".

6. Letter dated November 18, and delivered on November 22,

from China Exports, "Thank you for your order. We note your

acceptance of our terms".

Is there a concluded contract between the parties and, if so, what is its

date and what are its terms (especially quantity, price, mix, etc.). In

your answer, state the legal effect of each communication. Note:

Assume that Victorian law applies.


question.

Tutorial question 4

A new suit

Charlie, a seventeen year old, bought a suit from Danny for $100.

Charlie wanted a suit so that he could go to an



interview for a job as a sales representative (which he was successful in

getting). Charlie wrote out a cheque for the suit and the cheque was

subsequently dishonoured.

Advise Danny of any contractual liability he has for the suit (not in

respect of the law of negotiable instruments).


question.

Tutorial question 5

To catch a thief

Duncan had a painting, valued at about $15,000,

stolen from his house. He offered a reward to

anyone giving information leading to the

recovery of the painting.

Errol was a policeman stationed in the area of Duncan's house, and in

the course of routine investigations, discovered the thief and the

painting.

Errol approaches Duncan for the reward.

a. Does Duncan have to pay him?

b. Would your answer be any different if Errol was off duty at the

time he discovered the thief and painting?


question.

Tutorial question 6

Settle for less?

Mr Bright was owed $5,000 by Mr Gill. Mr Bright

agreed to accept a cheque for $4,500 from Mr

Gill's wife, in full settlement of his claim against Mr

Gill.

The cheque was banked by Mr Bright and he sent

Mr Gill a receipt marked "in full settlement".

Mr Bright now wishes to know whether he can sue for the remaining

$500.


question.



Tutorial question 7

Workers' rights

Mr Smith told his ten employees that his

business was now sold to a larger concern but he

would continue to run it as his business for a

further six months, and that he would pay all his

employees who were still with him at that stage

$2,500 severance pay.

By their contracts, Mr Smith's employees could be dismissed or they

could resign on two week's notice. When the business was finally taken

over, Mr Smith refused to pay the severance pay to those employees

who had stayed on for the six months.

Do the employees have any contractual rights?


question.

Tutorial question 8

Howard Hug

Gerald Smith, a confidence man, had recently

taken the name of Howard Hug, an American

millionaire, whose exploits were widely published

in the press. Mary Match was the owner of an

antique store. She was delighted when Smith,

elegantly dressed, entered her shop and introduced himself as Howard

Hug. He persuaded Mary to part with her most priceless item, an

antique vase, in exchange for his cheque. He did this with the simple

device of having the vase sent to an expensive hotel suite, which he had

taken under the name of Howard Hug.

The cheque was dishonoured. Smith sold the vase to John Richie, an

innocent third party, and then disappeared.

Advise Mary Match and John Richie of their legal rights to the vase.


question.

Tutorial question 9

Paid for a laugh

Ann Onymous is a struggling comedian. She is



offered a contract to have her jokes published. The contract provides

that the publisher is not bound to publish any of her jokes but that she

must provide at least one joke per week. Should any of the jokes sell,

Ann is entitled to only 5 per cent of any royalties. She signs the

contract. Is she bound by the contract?


question.

Tutorial question 10

Rival jeweller

Frank and Joseph each owned imitation jewellery

work and retail shops close to each other in

Melbourne. Joseph sold his business to Frank

and covenanted that for ten years he would not

solely, or as a partner, or as an employee, be

engaged in the trade of real or imitation jewellery in Asia, the United

Kingdom, France, the United States, Russia and Spain, or within a radius

of 25 miles of the capital cities of Germany or Austria. Joseph set up a

rival firm in Paris some twelve months after selling to Frank. Frank now

wishes to know whether he can sue Joseph. What would you advise

Frank?


question.

Tutorial question for discussion

Car for sale

Jacqui wrote to Seng in the following terms:

"I heard that you were thinking of selling

your car. If it is in good mechanical

condition and, if the price is right, I would

like to buy it. Please advise me as soon as possible".

Seng wrote back and said:

"The car is in excellent condition and is cheap at $1,700".

Jacqui replied, saying:

"I accept your offer and will buy the car for $1,700".

After receiving this letter from Jacqui, Seng received an offer from Zane

and sold it to him for $2,000.



Jacqui now wishes to know whether there was a contract between

herself and Seng for sale of the car at $1,700.

Advise Jacqui.

Note: There is no answer provided for this tutorial question. This

question can form the basis for tutorial or online discussion.


The defendant lived in South Australia and sent

a series of letters to her sister and niece who

resided in Scotland. She encouraged her sister

and niece to move to South Australia and "share

my home .... no rent at all...". The defendant

even promised to alter her will to provide that

her sister and niece could live in the house for

life free of rent. The sister and niece accepted the offer and sold their

assets in Scotland and sailed for South Australia. After arriving, relations

deteriorated. The sister and niece want to know whether there is a

contract.


question.


Pete ran a golf shop. His employee, Sam, was

careless in pricing a set of golf clubs. The price tag

read $50 instead of $500. Norm was walking past

the shop when he saw the golf clubs in the

window. He entered the shop and told Pete he

would buy the clubs for $50.

Can Pete be forced to sell the clubs at $50.


question.


Artie attended an auction of antique furniture and after Vern, the

auctioneer, called for bids on a Victorian sideboard, Artie was thehighest

bidder. Vern refused to sell at the highest bid

price. Can Artie force Vern to sell to him?

Would your answer be different if it had been

advertised as being an auction without reserve?




question.


David and Jack are good friends. David heard

that Jack was keen to buy his car. David wrote

to Jack and said "I hear you want to buy my

Mazda. You can have it for $3,000. I'll give you a

week to make up your mind".

The next day David met another friend, Sue, and

after some discussion, sold her the car for $3,500. Two days later Jack

heard from a mutual friend, Peter, that David had already sold the car.

Jack immediately rang David to accept the Mazda for $3,000.

Does Jack have a concluded contract with David? Would your answer be

different had Jack given David $50 to keep the offer open?


question.


An English ship builder entered into a contract

with an American ship owner to build a ship. It

was agreed that progress payments would be

made by the owner. In order to provide security

for such progress payments, it was agreed by

the builder to open letters of credit so that if he

defaulted, the owner would not find himself out-

of-pocket. The contract price agreed upon was calculated in US dollars.

Subsequently, the value of the US dollar declined by 10 per cent and,

accordingly, the builder requested that the then existing balance of the

contract price be increased by 10 percent. This the owner agreed to on

the proviso that the builder in turn agreed to increase the value of the

outstanding letters of credit by 10 percent. The builder did so agree and

the construction continued. The ship was completed and delivered to the

ship owner who thereupon sued the builder for the return of the extra

10 per cent paid on the ground that such payment was not supported by

an consideration because the builder had only done what he/she was

contractually bound to do.

Advise both parties of their legal rights using case law in support of your

answer.


question.




A promises to give B, 17 years of age, an equal

share in a partnership in return for $1,000,000. B

works in the partnership for a short period and

wishes to resign.

a. Can B recover the $1,000,000?

b. Would B be liable for the debts of the partnership contracted

while he was still a minor?


question.


Adam entered the Reality Art Gallery and saw a

painting which he immediately liked. On making

enquiries to Rudy, the owner of the gallery, he

was told the particular painting was a Vermeer

landscape and had a price of $50,000. Adam saw

this as a good investment and so he purchased

the painting. Some months later, a scandal

broke out involving a master forger who specialised in Vermeers. Adam

becomes very worried, and after seeking an expert evaluation, his worst

fears were confirmed. He further learnt that the painting has a value of

about $1,000. Adam wishes to know whether he has any contractual

remedies. Advise him.


question.


Rocky was an importer of two types of material

from India, jute and calico. The price of jute was

$100 a bale and the price of calico $300 a bale.

Maverick went to A's warehouse and placed an

order of 100 bales of "Indian material" at the

price of $200 per bale. Rocky assumed Maverick

meant jute, and sent out 100 bales of jute,

thinking that Maverick was ignorant of the market price. When Maverick

received the jute, he refused to accept and to pay for the goods because

he expected calico. Advise Maverick.


question.






A Commonwealth Act regulating shipping forbids

the overloading of a ship to such an extent that

the loadline becomes submerged (that is, the

ship becomes overloaded). A penalty was

imposed for such breach of the statute. The

Austral Shipping Line entered into a contract

with East Coast Grain Co. to carry a cargo of

wheat from South Australia to Tasmania. On the way, the ship stopped

in at Melbourne and picked up some scrap metal which caused the

loadline to become submerged contrary to the Act. Austral Shipping Line

was fined $5,000 for this breach. The ship eventually reached Tasmania

and off-loaded the cargo. East Coast Grain Co. now refuses to pay,

claiming that Austral could not enforce a contract they had performed in

an illegal manner. Has Austral a good claim?


question.


Harry carried on business as a tailor and draper.

James was employed at his shop under a

contract of employment which stated that for a

period of ten years after he left Harry's

employment he would not carry on a similar

business within 10 miles of Harry's shop, either

on his own, or as any partner or employee.

James left Harry's employ, and set himself up as a tailor more than 10

miles from the shop. However, he obtained and executed orders within

the 10 miles radius of Harry's shop. Harry wishes to know whether he

can enforce the covenant. Advise him.


question.

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Tutorial answers

Tutorial Question 1 Answer - Ruth and John's engagement

There is a clear agreement between Ruth's father and John's father. In

exchange for Ruth's father making all necessary arrangements, hiring a

room and providing music, John's father agrees to pay for food and

drinks at the engagement party of their children.

What is contentious is whether the parties intended their agreement to

have legal consequences or to be legally bound.

Clearly this is a family or social arrangement. The PRESUMPTION in such

cases is that parties do not intend to create legal relations.

This presumption may be rebutted by strong evidence to the contrary.

The common law cases show a number of factors that courts have used

to displace this presumption.

Serious economic consequences or significant consideration were key

factors in both Merritt v Merritt and Wakeling v Ripley in rebutting this

presumption.

In both of those cases, the fact that the parties had reduced their

intentions to a written form or document was also important. The fact

that parties put something in writing makes it more likely they mean

LEGAL (and not just social) consequences to an arrangement.

Other factors that the courts have regarded as important have included

changing a will (Wakeling v Ripley; Parker v Clark) and a married couple

making an agreement WHILE SEPARATED (Merritt v Merritt). Again

these factors show a greater likelihood that the parties intend legal

consequences rather than a mere social arrangement, and may

contribute in displacing the presumption of the intention to create legal

relations.

In this case, the only likely relevant factor (of those above) is the

potentially serious economic consequences. A fully-catered engagement

party may cost of thousands of dollars. Without more, however,

respective future in-laws probably don't intend legal consequences when

making arrangements for a party.

Tutorial Question 2 Answer - Henrietta's favourite watch

The legal issue in this problem is agreement.

Advertisements in newspapers are generally regarded as invitations to

treat. (Partridge v Crittendon.)

However evidence may indicate that the party placing the advertisement

intended it to be an offer (Carlill v Carbolic Smoke Ball).

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The nature of this particular advertisement indicates it is a clear offer to

be bound providing the terms are met, ie the return of the watch.

An acceptance must be in response to the offer. (R v Clarke).

In this problem, the advertisement is an offer, however the acceptance

(the returning of the watch) is not in response to the offer as Y was

unaware of the advertisement and reward when she returned the watch.

Therefore there is no agreement between the parties as the acceptance

is not a response to the advertisement.

Tutorial Question 3 Answer - A raspberry order

Do the various communications give rise to a concluded contract, and if

so, at what point and on what terms? A close examination of the issues

concerned with this question should give you an insight into just how

difficult it can be to ascertain whether, when and on what terms a

contract has arisen.

A contract requires agreement. An offer and its acceptance, taken

together, form the agreement. It must be mutual. Each of the

communications will be examined as to their legal significance if any.

Communication 1: simply a request for information or preliminary

negotiations.

Communication 2: a mere supply of information. - certainly not a firm

offer. It is useful, in this context, to define an offer; an offer is a

DEFINITE UNDERTAKING which will ripen into a contract upon its

acceptance. This communication probably represents the supply of

information or an invitation to treat(akin to a classified newspaper

advertisement as in Partridge v Crittendon). It is not a promise that

whatever is ordered will be supplied.

Communication 3: cannot be acceptance because there was no offer.

It may in itself constitute an offer since it appears to be a definite

undertaking to purchase goods. If this is an offer, then it is effective

when communicated on Nov 11.

However, the fact that a formal order will follow suggests that this

communication may be no more than alerting the Chinese company to

an intention to make an offer.

Communication 4: based on the previous communication, the formal

order to buy one tonne of canned raspberries effective on Nov 17 on the

terms specified by the Chinese company in Communication 2 (being

$150 per tonne, a fair distribution of sizes, equal monthly shipments and

deliveries commencing on Feb 1) and subject to IFTA standard contract

terms is sufficiently definite to constitute an offer (but see the discussion

re Communication 6 about "uncertainty of terms".

Communication 5: may be seen to be an effective communication (as



of Nov 15) revoking the earlier offer and substituting it with a new offer

to buy three-quarters of a tonne on the same terms. A theoretical

problem with this characterisation is that the "earlier" offer is

communicated to the Chinese company after they receive the associated

revocation.

Since the Chinese company has not yet accepted the offer in

Communication 4, the issue is moot. The net effect of Communication 5

is that either a new offer (revoking the old) has been substituted OR

Communication 5 gives "colour" to the offer in Communication 4

changing its terms.

At this point the Australian company has made an offer (effective on

Nov 17) to buy:

Three-quarters tonne of canned raspberries

At $150 per tonne

In a fair distribution of sizes

In equal monthly shipments

Commencing Feb 1

Subject to the standard contract terms of the IFTA

Communication 6: A number of issues require discussion here.

The first issue is the purported acceptance by letter (assuming that it is

indeed acceptance) According to the postal acceptance rule, acceptance

is effective at the point of posting (Adams v Lindsell). If the postal rule

applies, then the acceptance would be effective on Nov 18 and the

contract has been formed in China. (If this is the case, then a later

contractual dispute would be likely to determined upon Chinese contract

law - where the contract is formed). The Postal Acceptance Rule cannot

be automatically applied however; it only operates where the parties

have contemplated that post might be used as a means of acceptance.

The parties have not prescribed expressly a particular means of

acceptance. Given that all negotiations have been by either post or

telegram (which is also covered by the Postal Acceptance Rule), then it

seems reasonable to assume that the parties contemplated that post

might be used as a means of acceptance here. Therefore IF THIS IS

ACCEPTANCE, then acceptance occurs, and a contract comes into being,

on November 18.

A reading of Communication 6 must cast some grave doubts as to

whether this is acceptance at all. The fact that the Chinese company

notes acceptance of "our terms" might be read as a re-statement of

their terms set out in Communication 2 WITHOUT reference to the IFTA

standard contract clauses. If this is the case (unless the IFTA clauses

are of little significance), the response by the Chinese company may

arguably be regarded as a counter-offer and hence a rejection of the

Australian company's offer (as in Hyde v Wrench). This would create a

peculiar situation since the Chinese company will now send the goods



before acceptance, and acceptance will take place at some point in the

future when the goods are retained by the Australian company. In such

a scenario, the contract would be formed in Australia without the

inclusion of the IFTA standard terms (whereas if the letter of 18 Nov

represents acceptance, then the contract is likely to be formed in China

but include the IFTA clauses).

The above will only be of theoretical interest until a dispute arises, and

then it becomes problematic to determine when and where the contract

is formed (and hence which law applies - Australian or Chinese) and

what the terms of the contract are i.e. does the contract include the

IFTA standard terms?

Other issues may also cast a doubt as to the nature and existence of the

contract.There is some uncertainty as to. the terms of the contract; in

particular what is meant by a "fair distribution of sizes" and over how

many months would "delivery in equal monthly shipments" take. The

contract might be unenforceable for uncertainty as in Scammell v

Ouston, unless usual trade practice or prior dealings would provide the

exact details.

Finally, in the absence of a prescribed method of acceptance,

acceptance should be communicated by the same means used to send

the offer (or a means at least as fast). Other means may be acceptable

if not less advantageous to the offeror.

Here, the offer was by cable, but acceptance perhaps occurred by post

(if Communication 6 represents acceptance). Arguably then, the

acceptance is questionable, because not completed by an equally

prompt means. (See Quenerduaine v Coles Para 5-320, Latimer).

Tutorial Question 4 Answer - A new suit

The issue is minors' contracts.

Generally minors' contracts are unenforceable against minors unless the

goods and services purchased by the minor are necessary to sustain the

minor.

In this problem the suit is a necessary piece of clothing to present for

the job interview. Therefore the contract for the suit and its payment is

enforceable against the minor. Nash v Inman.

Note that minors only have to pay a reasonable price for necessary

items.

Tutorial Question 5 Answer - To catch a thief

This question requires discussion of two separate elements of contract.

These are:



1. OFFER & ACCEPTANCE and

2. CONSIDERATION

1. OFFER AND ACCEPTANCE

In general, a classified advertisement is regarded as an INVITATION TO

TREAT and not an offer (according to Partridge v Crittenden). This is so

for practical reasons; if it were otherwise, then all people affirmatively

responding to an advertisement could bind the advertiser in a contract.

This reasoning is inapplicable to the advertisement of a reward, since

the only person capable of accepting a reward offer is the person

returning the goods. Accordingly, the advertisement of a reward is

generally regarded as an OFFER (and not an invitation to treat).

Assuming that the reward in this case is advertised, it is indeed an offer.

According to R v Clarke, acceptance must be in reliance on the offer. If

Errol is not aware of the reward (and learns of it subsequently), he is

certainly not entitled to claim it. Even if he is so aware, he may be

prevented from claiming the reward if he did not return the goods in

reliance on the reward. The fact that he is performing a duty of

employment suggests that he was not acting in reliance on the reward

here. In R v Clarke, the court held that mere awareness of a reward

does not necessarily constitute reliance. In that case, Clarke (while

aware of a reward for information leading to the conviction of wanted

murderers), gave the relevant information to police to escape hanging.

His motivations showed a lack of reliance on the reward. This same

argument seems likely to apply here.

2. CONSIDERATION

We are concerned here with the rule that CONSIDERATION NEED NOT

BE ADEQUATE; IT MUST BE SUFFICIENT. The performance of a public

duty already owed by law cannot be good consideration for any promise

based on that conduct (according to Glasbrook Bros. v Glamorgan

County Council). In that case, police were promised substantial payment

for keeping order at a strike at a factory. The court held that, since the

police attended in larger numbers than that which they would normally

send to an industrial dispute, the police had given good consideration for

the promise of payment to attend. In other words, the police had done

something over and above their public duty.

In this case, it is problematic as to whether Errol is doing anything over

and above his duty as a policeman. Certainly, there is no consideration

provided by Errol for retrieving and returning the goods while on duty.

In theory, Errol's efforts when off duty might represent good

consideration for the reward, but there is an argument to suggest that

police remain under a duty to enforce the law at all times. Based on this

argument, Errol could not claim the reward since he would not be acting

over and above his duty.

Tutorial Question 6 Answer - Settle for less?



This question involves application of the important principle that

CONSIDERATION NEED NOT BE ADEQUATE; IT MUST BE SUFFICIENT.

The mere performance of a contractual duty cannot be good

consideration for any subsequent promise (according to the principles

found in Stilk v Myrick).

Accordingly, the rule in Pinnel's Case (Foakes v Beer) states that

payment of a lesser sum on the day in satisfaction of a greater sum

cannot be good consideration for the whole debt. In this case, Gill may

still be sued for the additional $500 according to the rule in Pinnel's

Case since he has provided no consideration for being absolved from the

debt. Any payment received by Bright was merely part of what he was

already contractually owed. In other words, Gill has given no fresh

consideration to relinquish his debt.

The strict application of Pinnel's Case may lead to harsh results and the

law has evolved a number of exceptions to this rule (some of which may

be relevant to our facts). The most obvious exception applicable to our

facts is PART PAYMENT FROM A THIRD PARTY. Here, the part payment

was made by a third party; Gill's wife. This is sufficient consideration for

Gill being released from the remainder of the debt according to

Hirachand Punamchand v Temple. If Gill could be sued for the remaining

$500, it would be a fraud on his wife (the third party) according to that

case.

Another potential exception worthy of mention here is PROMISSORY

ESTOPPEL. Arguably, Bright may be estopped from enforcing his further

right to sue when he has made a promise regarding present or future

conduct, intended to be binding, and intended to be acted upon. This is

the principle of Hightree's Case which is the landmark decision on

promissory estoppel. Here, estoppel may be raised by Gill to defend an

action for the remaining $500 debt. While the concept is being employed

as a "shield" (or as a defence) which is required by Hightree's Case,

there is no DETRIMENT suffered by Gill if the debt is enforced; he has

not changed his position by reliance on the promise. Accordingly, the

defence is unlikely to succeed.

It is questionable whether Waltons Stores (Interstate) Ltd v Maher, the

leading Australian decision on promissory estoppel, would assist Gill

either. That case was concerned with promissory estoppel being used as

a "sword" (or by a plaintiff to bring an action) and not as a defence as in

this case. Even if relevant, Gill is unlikely to succeed (based on Brennan

J's judgment), since once again there is no reliance or detriment

suffered by Gill as a result of Bright's promise.

Tutorial Question 7 Answer - Workers' rights

This question also involves application of the important principle that

CONSIDERATION NEED NOT BE ADEQUATE; IT MUST BE SUFFICIENT.

According to Stilk v Myrick, the mere performance of a contractual duty

already owed cannot be good consideration for any subsequent promise.



In our problem, Smith's employees have been offered $2,500 severance

pay if they remain with Smith for another six months before his business

closes down. Arguably, there is no consideration for the promise to pay

$2,500 to remaining employees since during this period they will still be

earning their regular wage. In other words, the employees will be doing

no more than that which is their contractual duty. Ostensibly, the

employees' conditions have not been altered. They may still leave upon

two weeks notice and they are still being paid.

On the other hand, employees will probably argue that, although their

current conditions will not alter for six months, they are now engaged in

employment of limited tenure and are entitled to the $2,500 final pay.

They have given up (for at least six months) the possibility of secure on-

going employment.

If there is no consideration for the promise to pay each remaining

employee $2,500, then alternatively employees may bring their action

based on PROMISSORY ESTOPPEL. The employer may be estopped from

denying his promise to make a termination payment and estopped from

seeking to rely on the lack of employees' consideration to escape from

fulfilling the expectations he has created.

The judgment of Brennan J in Waltons Stores (Interstate) Ltd v Maher

sets out six requirements for a plaintiff to establish promissory estoppel

in an action. These are set out in Latimer at Para 5-485. In our case, (1)

the expected legal relationship was that of employer and employee in

the context of a lump sum termination of employment payment (or

severance pay). (2) Smith had induced the employees to remain for the

six months by promising severance pay. (3) The remaining employees

had acted on this inducement by staying with Smith for the six months

and not taking alternative employment. (4) Smith intended the

employees to so remain. (5) The inaction of Smith in not meeting his

promise has caused detriment to the employees since they have not

only not received the $2,500, they are without alternative employment

for the foreseeable future. (6) Smith has failed to act to avoid this

detriment to remaining employees by not paying the promised sum of

money.

As all six requirements above are met, the employees are likely to

succeed in an action based on promissory estoppel (even if the

employer can successfully argue that there was insufficient

consideration from the employees to enforce Smith's promise in contract

law).

Finally, a further alternative that employees may consider is to argue

that the employer's failure to honour his promise of severance pay

represents MISLEADING AND DECEPTIVE CONDUCT and breaches s52

Trade Practices Act 1974 (Cth) and/or s11 Fair Trading Act 1985 (Vic).

Tutorial Question 8 Answer - Howard Hug

The issues are mistaken identity and consent. If it can be proven that



the identity of one of the contracts is of critical importance to the other

party then this will effect the consent of that party to the agreement.

The court may in these circumstances set the contract aside. In this

problem Miss March is aware of the identity of the other party and this

convinces her to part with the vase so promptly. However Miss March

would have sold the vase to anyone who had the required amount of

money, identity was not the fundamental issue in the agreement. In

these circumstances if title has passed to the confidence man then he

may be able pass that title to Richie.

The courts may decide that Miss March was more at fault than Richie in

that she failed to carry out proper checks on the identity of the

confidence man. Lewis v Averary.

Tutorial Question 9 Answer - Paid for a laugh

The major issue in this question is whether Ann Onymous can avoid her

contract with the publisher for unconscionability. She has two avenues

in this regard.

I Unconscionability - Common Law

Where there is UNEQUAL BARGAINING POWER between contracting

parties, and that unequal bargaining power is used to exact

OPPRESSIVE or harsh terms, courts are increasingly inclined to set aside

such contracts.

In the arts or entertainment industry, it has been recognised that there

is unequal bargaining power since a "struggling artist" has limited access

to public exposure. In Schroeder Music Publishing v Macaulay, a

musician who signed an oppressive contract with a publisher was able to

have the contract set aside for unconscionability. Apart from the

contract being a restraint of trade in that case (see facts in Latimer Para

5-730), the terms of the contract were unduly harsh.

As in Ann's case, the publisher took full copyright in the composer's

work and was under no obligation to publish any of it. Similarly to our

case, the royalties agreement was heavily weighed in favour of the

publisher.

An important factor in cases involving unconscionability is whether the

plaintiff has received or been encouraged to seek independent legal

advice (See CBA v Amadio). There is no evidence here of Ann seeking

independent advice before agreeing to these harsh terms. If Ann is

compelled to write material with little in return, then this is arguably an

unconscionable contract.

II Unconscionability - Statutory

The following discussion concerns Australian law and does not represent

the statutory position here. Nonetheless, it is worth bearing in mind the

potential for statutory intervention in this context in the future.

Accordingly, the following may only be of theoretical value in examining

the issues in this question.



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S: com3 2002Sem 3just2037 (bl108)site webfarmmodule · Brogden v metropolitan Railway Company (1877) 2 App Cas 666 Case law Felthouse v Bindley (1862) 11 CB (NS) 869 142 ER 1037 Carlill