Contract Law I – Global Homework Experts

LAWS11030 Foundations of
Business Law
Contract Law I
What is a Contract?
Note: Online sessions are recorded for educational purposes. Recordings of Zoom sessions may
be uploaded and appear on YouTube and Moodle. If you have any concerns about being
recorded please turn off your video camera or audio, or both, during the session. Your
participation will signify your consent to the recording and publication for
educational purposes.

Lecture Overview
A. What is a Contract?
B. Offer
C. Acceptance
D. Intention to Create Legal Relations
E. Capacity
F. Consideration
G. Illegal Contracts

A. What is a Contract?
What is a Contract?
• A contract is an agreement between two or more
parties that is enforceable in a court.
– Some contracts are formed and performed at the same
– Other contracts one or both of the parties make a promise
and therefore have an ongoing obligation upon formation
• An agreement is viewed as a ‘meeting of minds’
• Contract law is generally composed of the common
law and some statute for specific types of contracts.

Elements of an Enforceable Contract
• A valid and legally enforceable contract has six
1. Offer and acceptance
2. Intention to create a contract
3. Form of consideration
4. Legal capacity
5. Genuine consent
6. Legality of objects
Why are Contracts Needed in Business?
• Business involves different types of relationships
that give rise to legal rights and obligations
• The law of contract is the main law that determines
these legal rights and obligations
• Due to commercial or legal reasons a business may
want to:
1. Vary or extend the relationship.
2. Enforce the obligations in the relationship.
3. End the relationship.

Types of Business Contracts
• Production relationships
– Purchase, hire or repair of machinery/equipment, purchase of stock/raw
materials and technology acquisition
• Distribution
– Sale and transportation of goods and franchise agreements
• Marketing and advertising relationships
– Advertising agency contracts and market research contracts
• Personnel relationships
– Employment and consultancy contracts
• Financial and other relationships
– Banking, insurance, accounting, legal services, leasing premises, utilities

Classification of Contracts
• Simple contracts
– Also called ‘parol’ or ‘informal’ contracts
– Oral, written or partly written and partly oral and can be implied by conduct.
– Some statutes require contracts to be written eg. consumer credit contracts, sale of land
contracts and guarantees
• Express and implied simple contracts
– Express – intentions of parties in explicit terms
à orally or writing
– Implied – implicit from conduct of parties and circumstances
• Bilateral and unilateral contracts
– Bilateral – exchange of mutual promises for future performance eg. buying a commodity in
exchange for an amount of money
– Unilateral – offer is made by inviting acceptance as actual performance eg. lost dog notices
• Contracts under seal
– Deeds are signed, sealed and delivered
à do not require consideration
Are All Contracts Enforceable?
Valid contracts are enforceable in a court
Voidable contracts are when one party may elect to terminate the
contract due to the conduct of the other eg. induced to enter the
contract due to fraud
Void contracts never existed from the perspective of the law and
therefore create no legal rights or obligations eg. illegal contracts –
illicit drugs
Unenforceable contracts may be valid contracts but cannot be
enforced by one or both parties due to a technical defect eg.
statutory requirement to be in writing

Remedies for Breaching a Contract?
• Termination of contract
• Damages
• Court order for specific performance
• Injunction issued by a court to stop behaviour
• Recovery of the contract prices
• Agreed damages clauses in the contract

B. Offer
What is an Offer?
• An offer is a proposal by one person to another to enter a legally
binding contract
• Features of an offer:
– It can be made in writing, orally or implied by conduct
– It must be a genuine promise to do or not do something
– The person making the offer must intend that it be converted into a binding
obligation if accepted
Distinguishing an Offer from ‘Puff’
• Mere Puff is over-exaggeration or sales-talk and is commonly
used as an advertising technique in order to induce interest in a
product or service
• Puffery is not intended to be an offer or to create any legally
binding relation eg. ‘We make the best coffee in the world’
• Case study:
Pepsi Points Advterisement 1996 promoted products
that could be obtained for points from purchases – Leonard tried
to redeem 7 million Pepsi points for an AV-8 Harrier II jump jet:
Leonard v Pepsico Inc, 88 F. Supp. 2d 116 (S.D.N.Y. 1999),
affirmed 210 F. 3d 88 (2d Cir. 2000)
Distinguishing an Offer from an Invitation to Treat
• An offer is distinguished from an ‘invitation to treat’ which is a willingness to
deal or trade and is essentially a request for others to make an offer
– Eg. displaying goods in a store and usually catalogues, price lists and advertisements
• In a shop a prospective purchaser makes an offer to the cashier which can be
accepted or rejected:
Pharmaceutical Society of Great Britain v Boot’s Cash
Chemists (Southern) Ltd
[1953] 1 QB 401 à applies to self-service stores
• An auctioneer’s call is an invitation to treat and a bidder’s offer can be rejected
• Tenders are invitation to treat but…
1. The highest offer does not have to be accepted unless it was expressly stated in the
Spencer v Harding (1870) LR 5 CP 561
2. The tender process may create contractual commitments:
Hughes Aircraft Systems
International v Airservices Australia
(1997) 76 FCR 151
Making an Offer
• An offer can be made to a specified person(s), a class of
persons or the whole world
– The advertisement in Carlill v Carbolic Smoke Ball Co [1892] 2
QB 484 was made to the world at large and could be accepted
by anyone who read the advertisement and complied with its
• The offer must be communicated to the person to whom
it is made
à otherwise it cannot be accepted or an
‘agreement’ formed
• An offer can be revoked if it is communicated at any time
before acceptance
Lapsing of an Offer
• An offer lapses if:
1. It is not accepted within the time period stated
2. It is not accepted within a reasonable time
3. A counter-offer is made
4. Death of one of the parties before acceptance
5. Loss of capacity by either party
C. Acceptance
What is Acceptance?
• Acceptance occurs when the person to whom the
offer is made agrees to be bound by the proposal in
a legal relationship
• Acceptance must be communicated to the person
who made the offer except where:
1. the offeror made clear notification by acceptance wasn’t
2. acceptance is to take the form of performance of an act;
3. the postal acceptance rule applies.
Rules of Acceptance
1. Acceptance in the form of a promise and not the performance
of an act must be communicated to the offeror eg. word of
mouth, writing or conduct.
2. Acceptance cannot generally be communicated through silence
or inaction.
3. Acceptance cannot occur where the party is not aware that an
offer has been made.
4. Acceptance can only be made by the person to whom the offer
was made.
5. Acceptance must be unconditional
à a conditional
‘acceptance’ is a counter-offer.
Rules of Acceptance
6. Acceptance in the form of an act does not require
communication to the offeror unless the terms of the offer
require it.
7. The form of communication of an acceptance must generally
be set out in the offer.
8. Acceptance of an offer can be revoked prior to the offeror
receiving the acceptance.
9. Acceptance must occur within the time outlined by the offer or if
no time is outlined within a
reasonable time.
10. Communication must be made in a regular and authorised

The Postal Acceptance Rule
• The postal acceptance rule is an exception to the rule that
acceptance must be communicated
– Where acceptance by post is contemplated by both parties,
acceptance occurs the moment the letter of acceptance enters the
postal system:
Henthorn v Fraser [1892] 2 Ch 27
– Acceptance is not affected by delay or loss in the mail provided
postal acceptance was contemplated by the parties:
Household Fire
& Carriage Accident Insurance Co Ltd v Grant
(1879) 4 Ex D 216
• An offeror can exclude the postal acceptance rule by
requiring actual communication of the acceptance
D. Intention to Create Legal

Intention to Create Legal Relations
• An enforceable contract requires the parties to have an
intention to create legal relations in that the agreement
be enforceable in court
– The courts use an objective test to determine if there was an
intention by determining what was objectively conveyed by
words or conduct and the relevant circumstances:
Ermogenous v
Greek Orthodox Community of SA Inc
(2002) 209 CLR 95
Ermogenous held an intention to create legal relations
can be rebutted by two presumptions:
1. No intention in social and domestic agreements
2. An intention in commercial agreements
Commercial Agreements
• Where an agreement is reached in the course of
business dealings, the courts will enforce the
agreement unless it is clear the parties did not
intend that their agreement be legally binding
– This principle creates certainty for businesses
– Agreements can stipulate that there is no intent to
create a legally enforceable contract: see
Rose &
Frank Co v JR Crompton & Bros Ltd
[1925] AC 445
Domestic and Family Agreements
• The court will usually presume that domestic agreements between a husband and
wife do not intend to form a legal binding contract:
Balfour v Balfour [1919] 2 KB 571
– Principle extended to de facto relationships but not to agreements after a de
facto relationship has ended:
Shortall v White [2007] NSWCA 372
• The presumption can be rebutted and exceptions include:
– Agreements outside domestic matters and that involve a commercial matter such
as a partnership: see
Milliner v Milliner (1908) 8 SR (NSW) 471
– Agreements relating to the disposition of property after a marriage has broken
Merrit v Merritt [1970] 1 WLR 1211
• There is generally no presumption that family arrangements are not intended to be
legally binding:
Ermogenous à courts can find an intention to create legal relations
where one of the parties has significantly changed their position in reliance upon the
agreement: see eg.
Riches v Hogben [1986] 1 Qd R 315; Berghan v Berghan (2017)
57 Fam LR 104; [2017] QCA 236
Social Agreements and Charitable Activities
• Courts regard most social arrangements as too
insubstantial to be intended to give rise to legal
rights and obligations
– Exception: agreements to participate in a competition or
Trevey v Grubb (1982) 44 ALR 20
• Participation in the activities of a charitable or other
voluntary organisation will not normally give rise to
contractual rights and obligations
– Exception: see Ermogenous
E. Capacity
Capacity to Enter a Contract?
• Not all persons have the legal capacity to enter a
contract and the law regards some classes of
people as wholly or partly incapable of entering
contractual obligations.
• Key classes of persons with limitations on capacity:
– Minors – also regulation by State and Territory legislation
– Corporations
– Mentally incapacitated and intoxicated
– Bankrupts

Minors and Valid Contracts
• Minors in Australia are under 18 years of age and can enter valid, voidable and void
contracts and there are two types of valid contracts for minors
1. Goods and services contracts for ‘necessaries’ – determined based on a minor’s
circumstances and benefit is weighed against any detriment
2. ‘Beneficial contracts of services’ – employment contracts, apprenticeship
contracts or contracts relating to education

Minors and Voidable Contracts
• Contracts involving minor that are voidable:
1. Agreements that are binding unless repudiated by the minor
during their minority or within a reasonable time after attaining
the age of majority – involve continuing obligations eg. company
shares and leases
2. Agreements that are not binding unless ratified within a
reasonable time after attaining the age of majority – do not
involve continuing obligations eg. purchase of goods that are not
necessaries (void in Victoria)
• Statute makes some contracts involving minors void eg.
contracts for cheques and bills of exchange in all States

F. Consideration
What is Consideration?
• Consideration is a common law rule for simple contracts
– It means that a promise can only be legally enforced if both parties have
paid or promised to pay a price
– It is essentially the notion that ‘you do not get something for nothing’
– Example:
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
• Consideration must be in the form of an act, forbearance or
promise but must have value
• Example: Jerry promises to give his car to Elaine if she gives him
à the consideration is $5,000 and selling the car
Valid Consideration: Executed and Executory
• Valid consideration must be executed or executory
1. Executed consideration
• One party performs an act in exchange for the other party’s promise
• Eg. Javier offers a $100 reward for the return of his lost wallet. If Betty finds
and returns the wallet then she has performed her part of the bargain and
provided executed consideration
2. Executory consideration
• One party promises to do or not do an act in exchange for the other party’s
• Eg. Coffee Roasters Pty Ltd promises to sell 10 kg of coffee on the basis
that Café Plus Pty Ltd promises to pay $200 on delivery
à both promises
are in the future each provides the consideration for the other
Invalid Consideration: Past Consideration
• Past consideration is not valid consideration as consideration is the price
paid for a promise
– An act that has already been done in the past cannot then be used as
consideration for a subsequent contract: see
Anderson v Glass (1868) 5
WW & A’B (L) 152
• Limited exceptions:
1. Consideration based on a past act or forbearance that was done at
the request of the person making the present promise and the parties
understood such consideration to be legally enforceable:
Pao On v
Lau Yiu Long
[1980] AC 614
2. Consideration for a bill of exchange can be an antecedent debt or
Bills of Exchange Act 1909 (Cth)
3. A subsequent promise to pay a past debt on which action is statute
barred by the limitation of actions legislation

Rules of Consideration
1. Consideration must generally be executory or executed
and not past consideration
2. Consideration does not need to be adequate but must
have some value:
Chappell & Co Ltd v Nestle Co Ltd
[1960] AC 87
3. Consideration cannot be illegal or breach public policy
4. Vague consideration is insufficient – must be clear and
5. Consideration must be capable of performance
Rules of Consideration
6. Consideration must move from the promisee but does not have to
go to the promisor:
Pico Holdings Inc v Wave Vistas Pty Ltd (2005)
214 ALR 392
7. There is no consideration if the promisor promises to do or not do
something they are already obligated to do or not do by law or an
existing contract with the promise – the consideration is illusory:
Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040 and
Foakes v Beer (1884) 9 App Cas 605
8. Consideration can be a promise to refrain from taking legal action
– must be a
bona fide and reasonable claim
9. Consideration can be a
bona fide compromise of a dispute arising
from a claim
Doctrine of Promissory Estoppel
• The doctrine of promissory estoppel provides relief in limited circumstances from
the consideration rules – it is a ‘shield’ and not a ‘sword’
• Promissory estoppel applies where one party to a contract induces the other party
(promise, words, conduct) to believe that the promisor will not enforce their strict legal
rights under the contract
à the other party acts on that representation and alters their
position to their detriment
– The High Court focuses on the unconscionable conduct of the promise not breaching
the contract:
Sidhu v Van Dyke (2014) 251 CLR 505
– Remedies: specific performance or damages
• Promissory estoppel can be used to:
– Prevent a party to a contract from enforcing their contractual rights: rent reduction
during WWII in
Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB
– Prevent a party from denying that a contract even exists:
Waltons Stores (Interstate)
Ltd v Maher
(1988) 164 CLR 387
Requirements of Promissory Estoppel
• In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 38 the High
Court set out
six requirements for promissory estoppel:
1. The promisee assumed that a legal relationship existed or would exist.
2. The assumption was
induced by the words or conduct of the promisor.
3. The promisee
relied on the assumption and either acted in reliance of the
assumption or refrained from acting.
4. The promisor was
aware that the promisee relied on the assumption.
5. The promisee will suffer
detriment if the assumption does not come to be.
6. The promisor acted
G. Illegal Contracts
When is a Contract Illegal?
• Illegal contracts are unenforceable
• Common law illegality
1. Contracts to commit a crime or tort: Beresford v Royal Insurance Co Ltd [1938] AC
2. Contracts that promote corruption in public office:
Parkinson v College of Ambulance
Ltd and Harrison
[1925] 2 KB 1
3. Contracts intended to evade the payment of tax:
Effie Holdings Properties Pty Ltd v
3A International Pty Ltd
(1984) NSW Conv R 55-174
4. Contracts that prevent or delay the administration of justice.
• Statutory illegality – examples:
1. Sales where the invoice fails to comply with legislation: Anderson Ltd v Daniel
[1924] 1 KB 138
2. Failure to have a permit:
Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215

order now

Comments are closed.