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Contract Law: Forming a Contract

In order for a contract to be legally enforceable, it must adhere to certain requirements:

1. There must be an agreement; 2. The parties must intend their agreement to be enforceable; and 3. Both parties must provide consideration AGREEMENT: An agreement is satisfied through offer and acceptance. (offeree is a person or entity to whom an offer to enter into a contract is made by another (the offeror). Expression of interest Harvey v Facey. Acceptance must be communicated to the offeror (Powell v Lee). ‘postal acceptance rule’ which provides that a contract is formed as soon as the offeree posts the letter of acceptance to the offeror (Adams v Lindsell). However, if the communication concerns email as an instantaneous method of communication, the accepted view is that the postal rule does not apply to email communications, and the email must be actually received to be effective. In order to create a legally enforceable agreement, an agreement needs to be formed. One element of an agreement is a valid ‘offer’. An offer is a clear statement of the terms on which an offeror is prepared to be contractually bound. An offer can be contrasted with an invitation to treat which is an invitation to another person to make an offer. Pharmaceutical Society (GB) v Boots Cash Chemists, which held that displays in a shop are an invitation to treat. An offer may be revoked at any time if no consideration is made by the offeree (Goldsborough Mort v Quinn). Dickinson v Dodds, it was held that an offer can be revoked where a reliable third party communicates the revocation. Paying a deposit creates a separate contract called an option which makes an offer irrevocable before the agreed deadline (Goldsborough Mort v Quinn). Revocation is not effective until communicated (Byrne v Van Tienhoven)

INTENTION: The parties must intend their agreement to be legally binding. The two main presumptions are: Social and domestic agreements are presumed not to be binding (Balfour v Balfour).

Commercial or business agreements are presumed to be binding. These presumptions can be rebutted by evidence to the contrary. (Wakeling v Ripley) it was held that on the evidence the parties did intend to enter a binding and enforceable contract “as the consequences were so serious”. The plaintiffs gave up well-paid jobs in England and sold their property to move to Sydney. Specifically, under s 126 of the Instruments Act 1958 (Vic) (the Victorian reenactment of s 4 of the Statute of Frauds 1677), a contract for the sale or disposition of an interest in land cannot be enforced unless it is evidenced in writing.

CONSIDERATION: Consideration is the price paid for the other party’s performance of a contract. Consideration can take many forms including payment of money, provision of goods, provision of a service, undertaking of an onerous obligation or refraining from doing something. In Hamer v Sidway an uncle promised his nephew money if the nephew promised not to gamble, smoke or drink until he turned 21. The uncle died and the executor refused to pay. The court held forbearance by the nephew was good consideration. Consideration does not need to be adequate (Thomas v Thomas) but it does need to be sufficient (i.e. it must have some legal value).

Consideration cannot be too vague: White v Bluett; Placer Development Ltd v Commonwealth

In Hartley v Ponsonby, it was held that doing something in excess of one’s existing contractual duties is good consideration for a promise for extra payment. Consideration will not be acceptable if it is ‘past consideration’ (Roscorla v Thomas) or if it is for an existing contractual obligation: Stilk v Myrick Exception: Promissory estoppel

if there is no contract (Waltons Stores v Maher). is a legal

principle that a promise is enforceable by law, even if made without formal consideration, when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment. (a) the promisor intended the promisee to act in reliance on their promise, (b) the promisee suffered some detriment when acting in reliance on the promise,

and (c) it would be unconscionable for the promisor to break their promise.

Australian doctrine of promissory estoppel, as established in Waltons Stores v Maher This allows a party to use promissory estoppel as a cause of action (a “sword”). The English version of promissory estoppel, as established in Central

London Property Trust v High Trees, only allows promissory estoppel to be used as a defence (a “shield”)....