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LLB202 Contract Law – Tutorials Table of Contents Formation of Contracts Week 2 Tutorial: Agreement, Certainty and Intention.................................................................................... 2 Week 3 Tutorial: Consideration..................................................................................................................... 7 Week 5 Tutorial: Equitable Estoppel and Privity of Contract......................................................................... 15 Week 7 Tutorial: Capacity and Formalities................................................................................................... 21

Week 2 Tutorial: Agreement, Certainty and Intention 1.

Question 1.1

(a) A binding simple contract consists of agreement, an intention to create legal relations and consideration. (i) How is it determined whether an agreement has been concluded? 

A valid agreement is based on offer and acceptance

(ii) What is the correct approach to take when making the assessment as to whether the parties have the necessary intention to create legal relations? What factors may be relevant to the question? Read Ermogenous v Greek Orthodox Community of SA Inc. (2002) 209 CLR 95. 

1. 2. 3. 4. 5. 6.

Objective test. Whether a reasonable person would regard the agreement to be binding. Relevant factors include:

The subject matter of the agreement The status of the parties to the agreement The parties’ relationship to one another (if any) The language used by the parties The subsequent conduct of the parties The context in which the agreement was made

(b) Assuming that there is consideration, would there be binding contracts in each of the following circumstances? A father tells his daughter: “Here’s an offer for you. I’ll give you the $100 you want to buy the tickets for that concert you want to go to if you wash my car.” On hearing this the daughter says nothing but hurries outside and washes the car. YES A mother agrees to lend her son $10 000 to help him to start a business. YES Two business people agree on the sale of equipment at an office Christmas party. YES?

A mother offers to leave her home to her 25-year-old daughter Linda in her will if Linda returns from interstate and moves in with her. Linda does so. YES The government announces a scheme to pay truck drivers a bonus of $200 for every trip to designated country areas. Jake has made ten trips to designated areas and wishes to be paid $2000. However, the government now claims that budgetary demands forced it to cancel the scheme. YES - unilateral contract (promise in exchange for an act)

2. Question 1.2 Marble Gorge, a golf course resort on the Gold Coast, hosted a competition for its members. It posted a notice in the club house that stated: One week’s accommodation in a mountain view suite for the winner of today’s competition and for anyone scoring a hole-in-one. Wally and Harry saw the notice before they hit off. On the 9th hole they were delayed by some slow playing by players ahead of them and they were joined at the 9th tee by George and his playing partner, who had started behind them. Wally, Harry and George had known each other for years. When Wally teed off his ball bounced once and went into the hole for a hole-in-one. His celebrations were short-lived when George told him: Sorry to have to tell you mate – that notice was taken down after you started your round. It’s supposed to be for the big interclub competition next week. Harry was also disappointed because he happened to win the competition that day. Marble Gorge is refusing to give either Wally or Harry a week’s accommodation. Advise Wally and Harry.

ANSWER: In the case of certain unilateral contracts, an offer may not be withdrawn after the promisee has begun to perform the necessary conditions to enable acceptance of the contract to be completed. As the notice was taken down after Wally and Harry started their round, the contract would be legally binding.

3. Question 1.3 Preston Pi is the owner-manager of Preston Pi Industries Pty Ltd (PPI), which manufactures industrial chemicals. PPI supplies its customers in bulk by tanker truck, or by the steel drum. In the latter respect it has a fluctuating need for steel drums to ship its product. It therefore advertised a call for tenders for the supply of 1000 x 200 litre steel drums per month for twelve months and up to further 1000 x 200 litre steel drums per month as required. In response to the call PPI received a quote from Mandrake Metals to supply the barrels at a price of $25 per unit and a quote from Steelworkers Inc to supply at a price of $24 per unit. It also received a quote from Spartan Steel to supply at a price of $25 that included a number of additional features that made it a very attractive quote. However, the overworked PPI secretary who oversaw tenders mistakenly filed Spartan’s quote in the wrong folder, so it was never considered. PPI had had good service from Mandrake Metals on a previous job, whereas Steelworkers were a new company still trying to establish itself. PPI awarded the job to Mandrake Metals.

(a) Does Steelworkers have grounds for complaint for not being awarded the job? Answer: No. Each tender submitted is an offer which the party calling for tenders is free to accept or reject unless the call for tenders stipulates that the lowest tender will be accepted (Spencer v Harding). As the call for tenders did not stipulate that the lowest offer would be accepted, Steelworkers have no grounds for complaint.

(b) Preston Pi contacted Max Mandrake and told him that for February PPI would require 1500 drums. Mandrake told Pi that there was a problem – due to escalating costs he can no longer supply the drums at $25 and would now need to charge $26 per drum. Pi told him that was his bad luck because ‘we had a deal’ and that in March PPI would need 1750 drums. What is the total number of drums that Mandrake Metals is obliged to supply PPI in February and March (ie added together)? Answer: Deal is split into two parts

Part 1: 1000 drums per month for twelve months (accepted) Part 2: Up to a further 1000 per month as required (standing offer) (Colonial Ammunition Co. v Reid (1900) 21 LR (NSW) 338) Standing offer is a separate contract and can be revoked at any time

1. (c) Suppose instead that the call for tenders by PPI was for 2000 x 200 litre drums per month for twelve months. Steelworkers Inc quoted to supply at a price of $24 per unit and Mandrake Metals quoted to supply the barrels at a price of $25 per unit. PPI awarded the job to Mandrake Metals, but in doing so added ‘with delivery to our Eastside factory’, which was omitted from the original call. Is Mandrake Metals obliged to deliver to the Eastside factory? Answer: This is a counter-offer which kills the original offer.

(d) The secretary discovered the Spartan quote was misfiled only after the decision was made and Preston Pi had spoken with Mandrake. She drew this fact to Pi’s attention. Pi felt compelled to speak with the company’s owner, Sam Spartan, and let it slip not only that Spartan’s quote was never considered but that it was in fact the best quote and should have won Spartan the job. Is Spartan entitled to a remedy? No. The offeror was free to accept or reject.

4. Question 1.4 Preston Pi Industries Pty Ltd (PPI) was wanting to build a new factory to expand its industrial chemical business. Some chemicals it manufactures produce dioxide as a byproduct, a compound that can be toxic if not handled properly. Preston Pi met with Fred Fallow, who owned a farm northwest of Brisbane. They talked about PPI purchasing Fred's farm and the terms. Pi told him Fred would be making a formal offer but that he would need to hear back quickly because he was anxious to start construction of the factory to take advantage of the market. Indeed, he said he would be starting work on drawing up plans for the site as soon as he heard back from Fred. On 1 November Fred received a letter from PPI setting out the price and other terms as they discussed. The letter stated that “as you know we are anxious to start work

straight away” and that PPI would need to hear from him "before 15 November." It also stated that: “Naturally our deal would need to be recorded in a formal contract to be drafted by our lawyers, Odin's Lawyers, and contain such additional terms as they see fit.” Fred had already made up his mind to sell because he wanted a better life for his wife Frida and their five children, who had no interest in farming. On 2 November he posted a reply “accepting your proposal.” That afternoon he was chatting with his neighbour, Ted. Ted, who had done some research on PPI and the products it made, said: “That's alright for you. But we're going to have a time bomb next door to us. There was a factory like that in Austria which had an accident and let out a gas cloud. That dioxide stuff causes cancer.” Fred felt guilty about what he was going to leave behind for the community. He sent an email he found under PPI’s listing in an online directory of chemical companies (unknown to him PPI’s website was temporarily down being redesigned.) to advise that: “I have changed my mind and no longer wish to sell you my property. Please disregard the letter I have sent you.” Unfortunately, PPI had recently changed its internet supplier and no longer used that email address. No one at PPI had any idea that Fred’s email had been sent to that email address. The letterhead of the letter Fred received from PPI had its new email address, but Fred had overlooked it. PPI received Fred’s letter of 2 November on the afternoon of 3 November. Assuming there was consideration, was there a binding contract between Fred and PPI? Answer: As Fred posted the reply accepting the proposal, the postal acceptance rule applies as the acceptance was complete as soon as the letter was posted. However, as there is a deadline for when they must receive the acceptance, if the post gets lost or if anything happens to the post, the acceptance isn't valid. The deadline of 15th November implies that the offeror doesn’t want to use the postal acceptance rule.

Week 3 Tutorial: Consideration 1. Question 2.1 In the Consideration podcast, an approach to answering a question concerning formation of contracts was fully developed. What was that approach? 1. 2. 3. 4. 5. 6. 7. 8.

Was there an offer? Was the offer communicated? Was the offer still on foot? Was the offer accepted Was the acceptance effectively communicated? Was the agreement complete and certain? Was there an intention to create legal relations? Was there good consideration?

2. Question 2.2 In Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 the High Court was divided regarding the application of a principle of consideration. (i) What were the facts of the case?    

Plaintiff grants a company the ability to quarry stone from his property in exchange for royalties Agreement signed by Plaintiff and his wife, although wife not mentioned in agreement title Agreement authorised company to pay royalties to him and his wife as joint tenants. Plaintiff died, executor wanted to know whether the company has a contractual obligation to the wife

(ii) What was the decision of the court? Majority opinion:  Company owed no obligation to the wife: she wasn’t a party to the agreement  Contract was expressly between Plaintiff and the company  Company made no promise to pay wife  Wife signing did not make her a party  Therefore, royalties were only payable to the estate.

Dissenting opinion:  Signature did make the wife a party  The Company’s promise was made to the Plaintiff and his wife jointly.

(iii) What did the judges say in relation to joint promisees?  

While she was party to the agreement, this wasn’t enough to make her a joint promisee to the promise. If the wife was a party to the contract, and specified as a joint-Promisee, the consideration of her husband would have applied to her as well.

3. Question 2.3 Misty Dawn is a singer. She purchased a three-bedroom cottage. There were some minor renovations which had to be carried out, so she engaged a builder called Campbell for the sum of $40,000 to rebuild the kitchen and bathroom. Misty planned a house warming party in 6 weeks, after the renovations were complete, to celebrate her new purchase. (a) A week before the completion date for Misty’s renovation, Campbell realised that he could not complete the kitchen in time unless he had extra help. Misty was very concerned about this as she had invited some influential people to the house warming and it would have been extremely embarrassing to have had to cancel the event. She therefore agreed with Campbell’s request to pay an extra $10,000 so he could pay for extra workers to help him to finish the job. Campbell managed to complete the kitchen on time and the housewarming party was a great success. However, Misty now is questioning whether she should have to pay the $10,000. Does she? Plaintiff (Campbell) was already bound by an existing contractual duty to the defendant (Misty). Completion of the existing contractual duty does not amount to sufficient consideration to support a further promise made by the promisor (Misty) to the promisee (Campbell). Stilk v Myrick (1809) 170 ER 1168

However, as Misty benefited (able to host housewarming) as a result of the extra workers being hired to finish the job, the performance of the existing contractual duty may be sufficient consideration. Williams v Roffey Bros [1990] 1 All ER 512 Therefore, Misty does have to pay the $10,000.

How would your answer differ (if at all) if instead Misty had decided at the last minute that she wanted a stainless steel island in the middle of the kitchen, which was not part of the original plan. In order to finish on time Campbell had to hire extra workers at a cost of $10,000. Misty agreed to pay the extra $10,000 but is now questioning her obligation to pay this extra amount of money. Answer would differ as there is now a deviation from the terms of the original contract. As Misty decided she wanted a stainless-steel island in the middle of the kitchen which was not part of the original contract, the contractual duty was exceeded: Hartley v Ponsonby (1857) 119 ER 1471. As a result, there is sufficient consideration as Misty agreed to pay $10k and in return, Campbell would complete the stainless-steel island.

(b) Campbell finished the job on time and Misty was very happy. However due to a lull in the number of gigs combined with some significant expenditures on musical equipment, Misty was short of cash. She offered to pay Campbell $35,000 in satisfaction of the $40,000 debt, which Campbell accepted. Subsequently, Campbell discovered that Misty had managed to obtain a very lucrative gig at an up market hotel. Can Campbell recover the $5,000 balance? In. this scenario, the rule in Pinnel's case applies. The part-payment of debt cannot be consideration for the promise to forgo the debt. Misty's part payment of $35k is not sufficient consideration to forgo the remaining debt. The agreement between Misty and Campbell is not binding and therefore Campbell has the ability to sue Misty for the outstanding amount of $5k.

How would your answer differ (if at all) if Campbell accepted the payment of $35,000 in full satisfaction of the debt on the condition that he and his family have free entry to any of Misty’s concerts?

An exception to the rule in Pinnel's case would apply. The introduction of a new element by the debtor, such as a payment different in kind or at a different place or time. The new element must be introduced with the agreement of the creditor e.g. payment made at a different place for the debtor's convenience does not evade the rule. Pinnel’s Case (1602) 77 ER 237

(c) Misty purchased a set of exterior down lights and arranged for an electrician called Ernie to install them. When Ernie arrived to do the work, no one was home two days before the party, installed the lights as requested and left without speaking to anyone. A week later an invoice arrived in the mail from Ernie. This prompted Misty to call him to apologise for not being home for him and to thank him for doing the work so she would have the lights for her party. She said the bill looked fine and she would pay it promptly. However, she has since found that Ernie’s bill was twice the market rate. She thinks he’s ripping her off and doesn’t want to pay him anything. Advise Misty.

Past consideration applies. In some cases, however it is possible to infer that a certain sum would be paid, and a subsequent promise merely fixes the amount of payment. Three elements must be shown: (1) The act or promise must be done at the promisor’s request; 

Misty requested that Ernie come and install the set exterior down lights at her house

(2) the parties must have understood that the act or promise was to be remunerated either by a payment or the conferment of some other benefit; and 

As Ernie was a contractor hired by Misty and not a friend or family member, it is expected that a contractor would expect to be paid in exchange for their services.

(3) payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.  

Re Casey's Patents [1892] 1 Ch 104 (requested act) Pao On v Lau Yiu Long [1980] AC 614 (requested promise)

(d) Misty was provided with the opportunity to tour outback country pubs. She hired a company called Rocky Roadies Pty Ltd to carry her equipment around on tour while she travelled in a separate vehicle. Rocky Roadies provided the vehicles and drivers, but had a sub-contracting arrangement with Freeloaders, to load and unload the equipment at each destination. The contract between the Misty and Rocky Roadies contained a promise by Misty that she would not sue Rocky Roadies or Freeloaders if any of her equipment was damaged while being loaded or unloaded. An employee of Freeloaders dropped and damaged some equipment and wants to rely on Misty’s promise not to sue. Can Freeloaders rely on Misty’s promise not to sue them? Yes, they can. There is a contract between Rocky Roadies and Misty for the transport of cargo. Also contract between Rocky Roadies and Freeloaders. Also a clause in Bill of Lading between Rocky Roadies and Misty that prevents Misty from suing Freeloaders. Agreement and Intention elements of a contract already exist. Performance of an existing contractual duty to a third party (Rocky Roadies) can be good consideration. Therefore, there is good consideration for Misty's promise not to sue.

Problem P1 Corby Sharp is an adventurer who enjoys engaging in extreme activities. Corby decided that his latest adventure would be to walk solo across the Simpson Desert in Central Australia. Two days into the walk, and to the alarm of his support team, Corby went missing. An extensive search was unable to find him. Two weeks later he wandered into a remote homestead with a story that he had become lost and fallen into a ravine, losing most of his supplies in the process. He claimed to have survived solely by eating the packet of Venus chocolate bars that he had carried with him in one of his pockets. Corby became an overnight sensation in the media. On 4 May a private courier handdelivered a letter and champagne gift basket from No Idea magazine. The letter stated: You have an amazing story to tell and we want to help you tell it. We will pay you $500,000 if you give us world exclusive interview rights. Corby was very excited to receive this letter and hurriedly scribbled out a letter ‘agreeing to your proposal’ which he handed to the courier to take back to No Idea. The courier was reluctant to take the letter because he said No Idea had only asked him to deliver its letter and the gift basket and said nothing about taking back a reply. However, he was happy to do so w...