Contract Law Ass - Problem Question and Answer PDF

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ADVICE TO JACKJack must satisfy the following requisites to establish a valid and enforceable simple bilateral contract exists: (i) agreement (offer and acceptance) that is certain, clear and complete; (ii) consideration; (iii) intention to create legal relations; (iv) capacity; (v) legality; and (v...

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ADVICE TO JACK Jack must satisfy the following requisites to establish a valid and enforceable simple bilateral contract exists: (i) agreement (offer and acceptance) that is certain, clear and complete; (ii) consideration; (iii) intention to create legal relations; (iv) capacity; (v) legality; and (vi) consent.

AGREEMENT An agreement is made up of an offer and acceptance.1 An offer is a definite undertaking (promise) to another made with the intention to be bound by the stated terms.2 Acceptance is the expression, by words (express) or conduct (implied), of assent to the terms of an offer.3 In determining whether an agreement exists the court will consider the preliminary correspondence, intention and conduct between the parties and make an objective assessment. It is important to note that it is not necessary to definitively isolate the offer and acceptance, provided a concluded agreement was reached.4 On factual analysis it is likely the courts will find: (1) Jacks advert most likely constitutes an invitation to treat5, but may alternatively be considered an offer ‘to the world at large’.6 The courts determination will be based on the likely effect on customers and the intention of the advertising party; (2) Jenny’s response represents an offer, or may alternatively be deemed a counter-offer, (3) Jacks reply would be construed as a counter-offer,7 which in effect rejects Jenny’s offer and imposes a new offer, or in this case qualifies his invitation to treat or renews his original offer. Jacks renewed offer also clarifies any ambiguities and omissions by stipulating days and times, thereby completing the terms necessary to be incorporated in the agreement.8 Jack’s offer was effective at the time when it was communicated to Jenny by letter. It is immaterial that Jenny may not have read the letter, but in any case, the facts indicate she read the letter; and (4) Jenny’s corresponding conduct, which

1 Gibson v Manchester City Council [1978] 1 WLR 520; Clarke v Dunraven [1847] AC 59 2 Hart v Mills (1846) 15 LJ Ex 200 3 HBF Dalgety v Morton [1987] 1 NZLR 411 4 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 1789; Empirnall Holdings v Machon Paul Partners (1988) 14 NSWLR 523

5 Grainger v Gough [1896] AC 325 at p 334; Partridge v Crittenden [1968] 1 WLR 1204; [1968] 2 All ER 421; Harvey v Facey [1893] AC 552 6 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, per Bowen LJ at p 268 7 Turner Kempson v Camm [1932] VLR 498 8 LG Thoirne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81 at 88 Page 1 of 4

constitutes part-performance of a condition and enactment of the contract, demonstrates an implicit intention to accept9, notwithstanding that this was not expressly communicated . The requirement that acceptance must be communicated may be waived where (a) the offerror stipulates a mode of acceptance not requiring communication (Jack stipulates the agreement will be effective upon attendance), (b) the offerree accepts (Jenny’s attendance implies acceptance) and (c) the offerrees conduct is evidence of an intention to accept and conforms to the mode of acceptance as stipulated or implied by the offerror. Such is evidence of a ‘consensus of the minds’ and infers a concluded agreement.

Having satisfied the elements of an agreement Jack must objectively demonstrate the agreement was unambiguous, certain and complete.10 It is likely Jack will discharge this obligation as no necessary terms of the agreement were omitted.11

INTENTION TO CREATE LEGAL RELATIONS There is a presumption in the case of commercial agreements that parties intend to create legal relations and thereby be bound by their promises.12 This presumption can only be rebutted by evidence to the contrary. The facts do not support such a finding. The test of parties’ intention is objective. The courts will consider the circumstances and conduct of parties and apply a ‘reasonable person’ standard in determining whether the parties intended to be bound.13

CONSIDERATION A contractual promise must be supported by sufficient consideration.14 Consideration is an act, forbearance or promise by one party to a contract which constitutes the price paid for the other’s

9 Brogden v Metropolitan Railway (1877) 2 App Cas 666 10 Masters v Cameron (1954) 91 CLR 353 11 Scammell Ltd v Ouston [1941] AC 251; Whitlock v Brew (1968) 118 CLR 445; Hall v Busst (1960) 104 CLR 206 at 222 12 Rose and Frank Co v JR Crompton & Bros Ltd [1923] 2KB 261 at 293; Roufos v Brewster (1971) 2 SASR 218 13 Ermogenous v Greek Orthodox Community of SA Inc (2002) 187 ALR 92; Merrit v Merrit [1970] 1 WLR 1211; ABC v XIVth R Comm Games Ltd (1988) 3 Broadcasting Reports 227; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Edwards v Skyways Ltd [1964] 1 WLR 349; CF Jones v Vernon’s Pools Ltd [1938] 2 A11 ER 626; ibid [1926]

14 A promise not supported by consideration may be enforced by the doctrine of equitable estoppel, Waltons Stores Ltd v Maher (1988) 164 CLR 387 Page 2 of 4

promise.15 The doctrine of consideration is governed by four principles: (1) consideration must be of economic value, which need not be adequate but must be (2) sufficient,16 (3) must move from the promisee, and (4) may be executory but must not be past.17 The facts support a positive finding of executory consideration, that is, a promise for the provision of a service in return for a promise to pay. Jenny’s promise to pay Jack an agreed price of $100 per week for two one hour lessons is consideration for Jacks promise to provide the service. As Jack has provided consideration in the provision of a service the courts will likely enforce Jenny’s promise to pay for the benefit incurred.

VARIATION TO CONTRACT Jacks subsequent offer is a variation to the initial contract. This is an exception the full application of the parole evidence rule, which in its usual application would render evidence such as pre/postcontractual correspondence inadmissible where an agreement is reduced wholly in writing.18 The issue is whether the new agreement to accept a lesser amount from Jenny in return for the promotional benefit to Jack would likely be construed as bargained-for conduct already performed. This ‘existing duty’ rule.19 In such a case the requirements for consideration not being past may apply. An inference can be made that a certain sum would be paid, namely $200, and a subsequent promise merely fixes the amount of payment.20 However, this rule has been rejected in more recent cases and statute/s.21

The converse of a situation where a promissor agrees to pay an additional sum for the same performance is that where a debtor owing a sum for a past act pays, with the creditor's agreement, a lesser sum to that which is due. As there is no consideration supporting the creditor's agreement, the creditor may not be bound by it and so may be able to insist on payment of the full amount due. this

15 Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC 847; Australian Woolen Mills Pty Ltd v The Commonwealth (1953) 92 CLR 424 16 Thomas v Thomas (1842) 2 QB 851 17 Roscorla v Thomas (1842) 3 QB 234 18 Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252 at 262 per Innes J 19 Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168; Pinnel’s case (1602) 5 Co Rep 117a; 77 ER 237 20 Re Casey’s Patents [1892] 1 Ch 104; Pao On v Lau Yiu Long [1980] AC 614; Hartley v Ponsonby (1857) UK 21 Musumeci v Winadel Pty Ltd (1994) 34 NSWLR 723; Williams v Roffey Bros & Nicholls (Contractors) [1991] 1 QB 1; Competition and Consumer Act 2010 Page 3 of 4

would not apply in this case as the consideration is present, rather than being on reliance on the initial agreement. Jack has received the new benefit of promotion.

CONCLUSION As consideration has not yet moved from Jenny to Jack, Jacks subsequent promise to accept a lesser amount may not be binding and Jenny may be liable to pay Jack the full amount as per the initial contract. As such, Jack may be able to establish the second agreement did not amount to a new contract varying the terms of original contract, as acceptance has not been established. Consequently, as Jenny has failed to fulfil her initial obligations the new offer is capable of being revoked by Jack until such time as complete performance has occurred.22 If the courts accept this exception regarding revocation, Jenny will be liable to pay Jack $400, as per the terms of the initial agreement.

However, as Jack has received the benefit conferred by the succeeding varied contract, namely the promotion of his service, the courts will likely conclude the variation is binding and the elements of consideration have been satisfied.

As per the terms of the second or varied contract, Jenny owes Jack $200.

22 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 Page 4 of 4...