Week 5 Everything

Question 1

What is a contract?

Answer 1

A contract is a legally enforceable agreement. Most contracts do not need to be in writing. Many contracts are made verbally, and some contracts are implied by the conduct of the parties. Some contracts are formed and performed at the same time. With other contracts, one or both of the parties make a promise and therefore have an ongoing obligation once the agreement has been formed.

Question 2

A contract is legally enforceable because it contains certain elements which make it so:

Answer 2

Offer
Agreement
Intention
Consideration

Question 3

Agreement

Answer 3

An agreement is a meeting of minds, and exists when two or more people share understanding and intention. Many agreements are preceded by a period of negotiations. Sometimes the existence of a finalised agreement can be deduced from the conduct of the parties. At other times, the existence of a finalised agreement is less clear.

Question 4

To have an agreement or to agree on something, of and in itself, does NOT

Answer 4

give rise to a contract.

Question 5

Agreement, or to agree on something means that the first two elements of a contract are in play:

Answer 5

Offer and
Acceptance
ONLY.

If the other elements - Intention and Consideration – do not eventuate, then there is no contract.

Question 6

That means you can have an agreement or you can agree on something without that agreement eventuating into a contract.
Example:

Answer 6

Agreeing to have dinner at a friend’s house – you will bring the wine, they will cook the food. The elements of Offer and Acceptance are present here. There is even Consideration because each party is promising to do something [discussed later]. But the element of Intention is missing. Clearly, there is no intention to sue another, if one of the parties cannot fulfill his or her promise. Thus, a contract does not exist.

Question 7

Agreement =

Answer 7

Offer + Acceptance

Question 8

OFFER

Answer 8

A person makes an offer when they express a willingness to immediately enter into a contract with the person to whom the offer is directed. An offer is a definite statement, which if accepted, creates a contract, provided the other elements of intention and consideration are also present. An offer must be communicated to the offeree. The offeree can be one person, a class of persons, or the world at large. An offer can be made in writing, verbally or indicated through conduct. An offer must be distinguished from an invitation to treat

Question 9

Examples of Invitations to Treat

Answer 9

Advertisements
Catalogues
Circulars
Auctions
The display of goods in a shop

Question 10

AGREEMENT: Offer

In relation the first 3 headings, the general rule is that

Answer 10

They constitute invitations to treat. BUT the appropriate wording in any one of them, may indicate an intention to make an offer:

Question 11

An offer can be

Answer 11

Accepted by the offeree

Rejected by the offeree

Revoked by the offeror

Question 12

Acceptance must be absolute

Answer 12

Acceptance [by the offeree] must be absolute and unconditional [discussed later]. So to say ‘yes’ – only - to an offer, is to accept it absolutely.

Question 13

Rejection

Answer 13

To say ‘no’ to an offer is to reject the offer. If the offer is rejected, then it no longer exists and the offeree may not subsequently change his/her mind and purport to accept the offer which has been rejected. If it is to be accepted, the offer must be made again and accepted absolutely. An offer is rejected by the offeree.

Question 14

Revocation

Answer 14

The revocation of an offer is something done by the offeror. To revoke an offer is to say that it no longer exists. After the revocation, there is nothing to accept:

Question 15

An offer may be revoked

Answer 15

An offer may be revoked by the offeror or a reliable third party at any time prior to acceptance by the offeree, unless an option contract has been created. The offeror is entitled to revoke his/her offer even if the offeror has promised to keep the offer open for a particular period unless the offeree has paid for the promise of the offeror to keep the offer open [option contract]. For example, paying money to the offeror to keep the offer open for a certain time

Question 16

Option contract

Answer 16

An option contract is one which is separate from the main contract. It is a contract pursuant to which the offeree pays the offeror an amount of money for the offeror to keep the offer open for a specified time. In this context, it is a contract to buy ‘time’. Nothing else.

Question 17

ACCEPTANCE

Answer 17

When the offeree indicates by words or by action that he/she is willing to immediately enter into a legally enforceable contract with the offeror on the terms offered, the offeree is said to accept the offer. Acceptance must be absolute and unqualified, otherwise it is a counter-offer. If the offer is accepted, an agreement (and possibly a contract) comes into existence from that moment. If the offer has not been accepted or rejected, the offeror is entitled to revoke his/her offer. Acceptance must be communicated to the offeror. But they cannot insist that a failure to respond to the offer constitutes an acceptance

Question 18

The offeror can waive the requirement that acceptance be communicated:

Answer 18

This occurs in what are known as unilateral contracts where one party is promising to do something in return for the doing of an act:

Example:
The reward cases where one party promises to pay a specified amount in return for the finding and return of that party’s dog (the doing of something.)

Question 19

Acceptance may be communicated in one of two ways:

Answer 19

Postal acceptance rule

Instantaneous communication rule

Question 20

Postal rule

Answer 20

The postal rule provides that where the parties intend that the post is to be used as the means of communicating offer and acceptance, then acceptance of the offer occurs at the place and time the letter is posted. It is irrelevant if the letter of acceptance is lost. The offeror is still bound by the acceptance even if the acceptance letter is never received. This is so because the law takes the view that the offeror is in the position of dictating the terms of the offer and if the offeror does not want the postal rule to apply, then he/she may make this requirement a term of the offer. If the offeror does not protect him/herself in this way, then the postal rule will apply as a matter of commercial convenience.

Question 21

The instantaneous communications rule

Answer 21

If this applies, the acceptance is completed at the time and place where it is received.

Question 22

The instantaneous communications rule example

Answer 22

Face-to-face communications, discussions no the
phone and texts may be considered instantaneous in nature.

If A is in Melbourne and B is in Queensland and A makes an offer to B which B accepts, the acceptance is completed in Melbourne at the time B hears the acceptance (the place it is received.)

Question 23

INTENTION

Answer 23

The parties to the agreement must intend the agreement to be legally enforceable. In deciding whether or not this requirement is satisfied, the court looks at the conduct of the parties from the perspective of an objective observer and asks whether the parties were behaving in a way that would indicate to a reasonable person that they intended the agreement to be legally enforceable.

Question 24

In applying the objective test, the courts have traditionally made two important presumptions.

Presumption 1

Answer 24

If the agreement was made in a social or domestic context, the court will presume that the agreement was not intended to be legally enforceable. This is a presumption only and may be rebutted (proven to be inapplicable) in the appropriate circumstances.

Question 25

In applying the objective test, the courts have traditionally made two important presumptions.

Presumption 12

Answer 25

If the agreement is made in a commercial or business context, the court will presume that it was intended to be legally enforceable. But, a promise made to customers in a business context will not be enforceable if the promisor can show that the promise was clearly not intended to be taken seriously by customers.

Question 26

Consideration

Answer 26

An agreement is not a contract unless both parties to the agreement have paid, or promised to pay, a price, called consideration. Consideration is the ‘price’ paid for another’s promise.

Question 27

Consideration can take the form of:

Answer 27

the payment of money,

the provision of goods,

the provision of a service,

the undertaking of an onerous obligation, refraining from doing something, e.g. agreeing not to sue, or
a promise to do any of these things.

Question 28

Consideration may be:

Answer 28

Executory

Executed

Past consideration

Question 29

Executory

Answer 29

promises have been made by the parties but have not yet been acted on

EXAMPLE: The promise to pay for goods and the promise to deliver goods.

Question 30

Executed

Answer 30

EXAMPLE: When the goods have been delivered and paid for.

The parties have done what was promised.

Question 31

Past consideration

Answer 31

But it may not be past consideration. Past consideration is no consideration at all because the doing of an act precedes the promise to pay.
EXAMPLE
A mows B’s lawn and B subsequently promises to pay for the mowing of the lawn.

Question 32

Sufficient consideration must be distinguished from:

Answer 32

a vague promise

past consideration

Performance of a prior contractual legal obligation

Performance of less than legal obligation

Question 33

According to the rule in Foakes v Beer

Answer 33

According to the rule in Foakes v Beer, part payment of a debt is not sufficient consideration for a promise by the creditor to waive payment of the balance of the debt: ‘Payment of a lesser sum on the due date is no satisfaction of the whole’.

Question 34

A promisee will have provided sufficient consideration for a promise to waive the balance of the debt if:

Answer 34

they make the part payment earlier than the originally agreed due date;

they make the part payment in a different currency,
they accompany the part payment with additional consideration such as the provision of a service

the part payment is made by a third party rather than the promisee debtor

Question 35

The promise will also be enforceable if:

Answer 35

the agreement to waive the balance is in the form of a deed, or the doctrine of promissory estoppel applies to the situation

Question 36

Promissory Estoppel

Answer 36

Promissory Estoppel is an extension of and exception to, the rule in Foakes v Beer that payment of a lesser sum on the due date is no satisfaction of the whole. Promissory estoppel deals with situations where the plaintiff had promised to accept less than the plaintiff is contractually entitled to, and the defendant relied on that promise to the defendant’s detriment.

Question 37

promissory estoppel may be used in one of two

ways:

Answer 37

The traditional way where there is a pre-existing contract whose provisions the plaintiff creditor agreed not to enforce, but subsequently goes back on the promise and sues the defendant/debtor who uses promissory estoppel as a defence

To commence an action where no contract exists- only pre-contractual relations: Waltons Stores.