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UNSW Foundation Studies
2016 B/B+ Semester 2
Unit 5:
Contract Law
(continued)
Lecturer: Hui Thong
Business Law
Unit 5: Contract Law (continued)
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Overview
Formation of a contract (continued)
Intention to create legal relations
Consideration
Using the IPAC method to answer contract problem questions
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Formation of Contract 3
Essential elements of a valid contract
Agreement = Offer + Acceptance (See Unit 4)
Consideration
Intention to create legal relations
Agreement Consideration Intention Contract
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Consideration4
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Consideration
Essential/necessary in every simple contract
Promisee must provide consideration for the promise they have received
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Consideration
Types of consideration
Executory Consists of a promise to do something
E.g. X promises to pay Y in return for Y’s promise to wash X’s car
Executed Takes the form of performing an act
E.g. Carlill v Carbolic Smoke Ball
Past Consideration pre-dates the promise
E.g. X promises to pay Y after Y has completed the work
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Consideration
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Rules relating to Consideration
Consideration may be “executed” or “executory”
but cannot be “past”
Consideration
Consideration must be sufficient
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Consideration
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Consideration must amount to something more
than party already obliged to do
Stilk v Myrick [1809] 170 ER 1168
Facts
Plaintiff – one of 11 seaman
During the voyage, 2 seamen deserted
Captain promised remaining crew extra wages if they continued to work the ship back to London
Consideration
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Stilk v Myrick [1809] 170 ER 1168
Issue
Was the agreement to pay extra wages a binding contract?
Decision
No consideration was given by the plaintiff for the promise to pay
Consideration
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Consideration need not be adequate
Consideration
Consideration must not be illegal or unlawful
Consideration must be definite, clear, certain
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Consideration (Examples) 13
Y pays X $5,000
Consideration is adequate
Consideration is sufficient
Valid contract
Y pays X $100
Consideration is inadequate
Consideration is sufficient
Valid contract
X promises to give car to Y for free
No consideration
Gift/Gratuitous promise
No valid contract unless formal contract created
X has a car. Its market value is $5,000
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Consideration
Another relevant case you have studied
Carlill v Carbolic Smoke Ball (See Unit 4)
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Intention to Create Legal Relations15
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Intention to Create Legal Relations
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There must be clear intention by the parties that
the agreement is intended to be enforceable in
law
Intention to Create Legal Relations
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Intention is:
Seldom stated
Understood from circumstances (Example: Actions of parties)
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Intention to Create Legal Relations 18
2 rebuttable presumptions
Presumed that parties do not intend to create legal relations
Presumed that parties intend to create legal relations
Family, domestic or social agreements Business agreements
Intention to Create Legal Relations
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Social/Domestic arrangements
Balfour v Balfour [1919] 2 KB 571
Facts
Husband promised to pay wife £30/month
Parties subsequently divorced
Intention to Create Legal Relations
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Balfour v Balfour [1919] 2 KB 571
Issue
Was Mr Balfour’s promise to pay £30/month legally enforceable?
Decision
Agreement was not enforceable
Intention to Create Legal Relations
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Merritt v Merritt [1970] 2 All ER 760
Facts
Husband and wife separated.
Wrote, signed and dated an agreement that wife continue payment of mortgage, husband transfer property
Wife paid off mortgage; husband refused transfer
Intention to Create Legal Relations
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Merritt v Merritt [1970] 2 All ER 760
Issue
Was the agreement legally enforceable?
Decision
Agreement was legally enforceable
Intention to Create Legal Relations
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However, the presumptions may be rebutted by evidence to the contrary.
Intention to Create Legal Relations
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Wakeling v Ripley (1951) 51 SR (NSW) 183
Facts
Wakeling and Ripley – siblings
Ripley (Sydney) invited Wakeling (England) to live with him; promised to include Wakeling in will
Wakeling left job, sold properties
Wakeling excluded from will
Intention to Create Legal Relations
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Wakeling v Ripley (1951) 51 SR (NSW) 183
Issue
Whether the agreement between the family members was legally enforceable.
Decision
Agreement was legally enforceable
Intention to Create Legal Relations
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Commercial/Business arrangements
The commercial presumption can be rebutted:
by the circumstances of the case
when parties expressly excluded legal relations
Intention to Create Legal Relations (Examples)
Meeting a friend for dinner
House cleaning for mother
Borrowing friend’s car
Purchasing a house
Business partnership
Employment agreement
Can you take legal action if you break these agreements?
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Intention to Create Legal Relations
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Use of presumptions of limited value
The use of presumptions could lead to the wrong conclusions (See above, Merritt v Merritt [1970] 2 All ER 760 and Wakeling v Ripley (1951) 51 SR (NSW) 183)
Intention to Create Legal Relations
Objective approach is to be taken
Whether a reasonable person expect legal obligations in the circumstances?
Court will look at the facts and circumstances surrounding the agreement, e.g.
What was agreed?
Words used by the parties
Effect of agreement on parties
Parties subsequently acted as if agreement is binding
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Intention to Create Legal Relations
Another relevant case you have studied
Carlill v Carbolic Smoke Ball Co. (See Unit 4)
Carbolic Smoke Ball Co. was not successful in arguing no legal relations as they showed their intention by depositing £1,000 in a bank account.
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Using the IPAC method to answer contract problem questions
The IPAC method31
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Using IPAC (Example: Contract Law)
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Sample Problem
Ken’s pharmacy had been broken into many times in the past few years. Finally, after a robbery last month, Ken rang the local police station and explained what had happened. The police station sent Eric, a police officer, to Ken’s pharmacy to make the necessary investigations. Ken said to Eric: ‘If you can find the thief I will reward you with $2,000.’
Eric conscientiously worked on the case. After two weeks of sustained effort, he had found the thief and had him arrested. He asked Ken for the $2,000. Ken decided to break his promise by refusing to give Eric the money.
Advise Eric as to consideration.
In your answer, you must consider and apply any relevant decisions from any relevant cases you have studied.
Using IPAC
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33 Suggested Response
Issue
This problem question has to do with consideration, one of the essential elements needed to form a contract. The issue is whether consideration was provided by Eric.
Principle/s
Consideration is the price paid for a promise. It is also described as something done or promised by one party in exchange for something done or promised by the other party. However, where there is a promise by one party to perform an existing public duty required by contract, this is not consideration (Stilk v Myrick)
Application
From the facts given, Eric is a police officer and his duty is to apprehend criminals. Eric is only promising Ken to do what is already expected of him.
Conclusion
Therefore Eric cannot sue Ken for the $2,000, as he had offered no consideration, and there is no contract.
End of Lecture
Written Assignment question and instructions released in Lecture next week
Students must:
Read prescribed reading for Unit 5 (Contract Law (continued))
Attempt Tutorial Exercises BEFORE going to Tutorial in Week 6
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