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Week$1:$Formation$of$Contracts$

Key$points:$

The$nature$and$importance$of$contract$law$
Formation$of$contracts:$Agreement$(offer$&$acceptance)$
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The$nature$and$importance$of$contract$law$
What%is%a%contract?%
A$promise,$or$set$of$promises,$that$is/are$legally$binding%
Bilateral$contract:$each$party$makes$a$promise$to$the$other%
Unilateral:$one$party$make$a$promise%
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The%nature%of%contract%law%
Largely$judgePmade$law%
Contractual$obligations$largely$selfPimposed%
Particular$event$may$give$rise$to$rights$under$other$areas$of$law%
Largely$derived$from$England%
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Formation$of$contracts:$Agreement$
The%nature%of%an%agreement%
An$understanding$between$2$parties$that$one$of$them$will$do$something,$or$promise$to$do$something,$in$return$for$the$other$
doing/promising$to$do$something%
2$elements:$meeting$of$the$minds$&$a$promise%
Whether$agreement$reached$determine$objectively$not$subjectively%
Must$be$entered$in$voluntarily%
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Offer%and%acceptance%
Determines$whether,$when$&$where$an$agreement$is$reached$
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Offer%
Is$a$promise$by$one$person$(offeror)$to$do$something,$or$not$to$do$something,$if$the$person$to$whom$it$is$addresses$(offeree)$
responds$in$a$stipulated$manner%
Can$be$made$to$an$individual,$group$or$the$whole$world%
Must$be$distinguished$from$an$invitation$to$deal$which$is$communication$intended$to$initiate$negotiations%
Can$be$terminated$by:%
Revocation:$offer$withdrawn$&$the$offeror$communicates$this$to$the$offeree%
Rejection:$a$communication$saying$no$to$an$offer$(by$offeree)%
CounterPoffer:$communication$stating$the$offer$is$acceptable$in$substance,$but$seeking$to$vary$the$terms$of$the$proposed$contract$
(by$offeree)%
Lapse$of$time:$if$an$offer$specifies$a$time$within$it$must$be$accepted,$acceptance$after$this$is$ineffective,$unless$offeror$agrees$to$
waive$the$stipulation.$If$time$not$stipulated,$offer$ends$after$a$reasonable$amount$of$time.%
Death:$offer$terminated$if$the$offeror$dies%
Failure$of$condition:$if$offer$made$conditional$upon$the$occurrence$or$nonPoccurrence$of$an$event/state$of$affairs,$the$offer$will$
lapse$if$it$does$not$occur.%
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Acceptance%
Affirmative$response$to$an$offer%
Can$only$be$accepted$by$the$person$to$whom$it$is$addressed%
Words/conduct$must$expressly$or$by$implication,$indicate$assent$to$all$the$terms$of$an$offer%
Acceptance$not$effective$until$its$communicated%
Exceptions:%
Offeror$waives$need$
Silence$of$offeree$
Postal$acceptance$rule$
Offere$specified$special$mode$of$acceptance,$not$involving$communication$
Offeror$prevents$party$from$asserting$that$communication$of$acceptance$has$not$occurred$
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Relevant%case%
Carlill%v%Carbolic%Smoke%Ball%Co%[1893]$1$QB$256:$offer$&$acceptance$
Australian%Woollen%Mills%Pty%Ltd%v%the%Commonwealth%(1954)$92$CLR$424$:$offer$&$acceptance$
Oceanic%Sun%Line%Special%Shipping%Co%Inc%v%Fay%(1988)$165$CLR$197:$when$&$where$a$contract$is$made$

2!

Week$2:$Formation$of$Contracts$
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Key$Points:$

Certainty$
Conditional$Contracts$
Consideration$
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Certainty$
Types$of$uncertainty:$
Vague$or$ambiguous$terms:$words$so$vague/ambiguous$that$meaning$cannot$be$given$to$them$will$no$be$enforced$
Illusory$agreements:$one$that$makes$the$performance$of$a$partys$promises$entirely$a$matter$for$that$partys$discretion$
Incompleteness:$not$enforceable$because$it$does$not$deal$with$all$essential$matters.$Parties$can$provide$for$essential$
matters$to$be$resolved$later,$so$long$as$this$does$not$require$them$to$reach$further$agreement.$
Agreements$to$agree:$agreement$to$enter$into$an$agreement$in$the$future$=$not$enforceable.$Agreement$to$not$agree$with$a$
3rd$party$is$enforceable.$
Agreement$to$negotiate:$an$agreement$to$negotiate$the$terms$of$a$contract$in$the$future$=$may$be$enforceable$
Severance:$if$the$uncertain$parts$of$the$agreement$can$be$severed$from$the$rest,$the$remaining$parts$will$be$enforceable$
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Relevant%cases%
Council%of%Upper%Hunter%County%v%Aust%Chilling%(1968)$118$CLR$429$$
%
Conditional$contracts$
Conditional$upon$the$occurrence$or$nonPoccurrence$of$an$event$or$other$circumstance$
Condition$precedent:$condition$must$be$fulfilled$before$the$contractual$obligations$become$binding;$not$binding$unless$
condition$filled$
Condition$subsequent:$the$parties$are$contractually$bound$when$they$include$such$a$condition$unless/until$that$condition$fails;$
contractual$obligations$come$to$an$end$if$condition$not$met$
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Relevant%cases%
Air%Great%Lakes%Pty%Ltd%v%KS%Easter%Holdings%[1989]$2$NSWLR$309:$condition$precedent$
Hongkong%Fir%Shipping%Co%Ltd%v%Kawasaki%Kisen%Kaisha%Ltd%[1962]$2$QB$26:$condition$precedent

Consideration$
Price$stipulated$by$the$promisor$for$a$promise$
Contract$is$nto$enforceable$without$it$
Not$required$for$a$deed$under$seal$or$where$promissory$estoppel$applies$
Can$take$3$forms:$
Performing$an$act$
Promising$to$do$something$in$return$
Fore$bearing$from$performing$an$act$
3$essential$elements$
It$must$be$something$of$value$in$the$eyes$of$the$law$
It$must$be$nominated$by$the$promisor$
It$must$be$given$in$exchange$for$the$promise$
The$nature$of$consideration:$
Consideration$can$be$anything$stipulated$by$the$promisor,$expressly$or$impliedly,$that$is$not$illegal$or$illusory$
Consideration$must$be$real$(as$in$not$illusory)$but$need$not$be$as$valuable$as$the$promise$
Consideration$must$be$contemporaneous$with$the$promise$e.g$an%act%occurring%before%promise%cannot%be%consideration$
Exceptions:$
Service$performed,$at$the$promisors$request,$in$the$past$for$subsequent$promise$of$payment,$and$it$was$
understood$it$would$be$paid$for$
A$debt$incurred$by$an$infant$may$be$good$consideration$for$a$promise$to$pay$after$the$person$becomes$an$adult$
A$statute$barred$debt$for$a$subsequent$promise$to$pay$amount$owed$
Technical$exceptionPan$antecedent$debt$is$good$consideration$for$a$bill$of$exchange$
Consideration$must$move$from$the$promisee$but$need$not$pass$to$the$promisor$
Performing$an$existing$duty$may$be$consideration$(already$owe$to$promisor$or$3rd$party,$public$duty)$
Settling$a$legal$dispute$or$giving$up$a$claim$can$be$consideration$
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Relevant%case%
Australian%Woollen%Mills%Pty%Ltd%v%the%Commonwealth%(1954)$92$CLR$424$$

3!

Week$3:$Formation$of$Contracts$
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Key$Points:$
Intention$to$contract$
Capacity$to$contract$
Formalities$

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Intention$to$contract$
Agreement$only$has$a$contractual$effect$is$parties$intend$it$to$
In$deciding$whether$intention$exists,$regard$must$be$had$to$all$surrounding$circumstances$e.g$what%the%parties%said/wrote,%
their%relationship,%nature%and%terms%of%the%agreement%etc$
Assessed$objectively;$ask$whether$a$reasonable$person$would$conclude$that$both$parties$intended$the$agreement$to$be$an$
enforceable$contract$
Domestic,$family$&$social$agreements:$not$usually$indented$to$be$legally$binding,$therefore$unusual$circumstances$will$
usually$need$to$be$shown$
Government$agreements:$usually$intended$to$be$legally$binding,$may$not$if$in$regard$to$a$policy$initiative$
Commercial$agreements:$usually$intended$to$be$legally$binding,$but$made$difficult$by$an$honour$clause$
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Relevant%cases%
Air%Great%Lakes%Pty%Ltd%v%KS%Easter%Holdings%[1989]$2$NSWLR$309$$
Australian%Woollen%Mills%Pty%Ltd%v%the%Commonwealth%(1954)$92$CLR$424$$
Ermogenous%v%Greek%Orthodox%Church%of%SA%Inc%[2002]$209$CLR$95$
Capacity$to$contract$
A$persons$ability$to$make$an$agreement$that$can$be$enforced$by$the$other$party$
No$capacity$due$to:$
Mental$incapacity:$lacked$mental$capacity$to$understand$the$nature$&$effect$of$the$contract$&$this$was$known/should$
have$been$known$by$the$other$party$
Intoxication:$where$intoxication$impairs$judgement$to$such$a$degree$that$they$did$not$properly$understand$what$they$
were$doing$&$this$was$known$to$the$other$party$
Minor:$contract$voidable$unless$it$is$for$the$benefit$of$the$minor,$or$for$necessities$(to$maintain$existing$lifestyle)$
Bankruptcy$does$not$invalidate$contracts$made$before$bankruptcy,$and$despite$being$bankrupt$a$person$may$enter$into$a$
contract,$provided$they$disclose$their$bankruptcy$
The$Crown$can$be$sued$for$breach$of$contract$
Under$the$Corporations%Act%2001%(Cth),$corporations:$
Have$the$same$contractual$capacity$as$an$individual$
Can$make$contracts$in$2$ways:$
(1) by$acting$through$an$individual$who$has$the$companys$express/implied$authority$to$contract$on$their$behalf$
(s126(1))$
(2) by$formally$affixing$the$companys$common$seal$($s$127(2))$
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Relevant%case%
Blomley%v%Ryan%(1954)$99$CLR$362$
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Formalities$
Contracts$can$be$made$without$any$formalities$
Contracts$for$which$formalities$are$prescribed:$
Sale$of$land:$must$be$in$writing,$signed$&$prePdate$any$litigation$
Contracts$of$guarantee:$contract$must$be$evidenced$by$a$rate$or$memorandum,$signed$by$party$to$be$bound$
(Instruments%Act%1958%(Vic)$s$126)$
Consumer$contracts:$in$writing$&$must$contain$terms$designed$to$safeguard$the$consumers$interests.$Signature$of$both$
parties$typically$required$&$a$copy$to$be$given$to$consumer.$
Consequences$of$nonPcompliance:$
Common$law:$rights$that$are$independent$of$the$contract$can$be$enforced,$even$if$the$contract$is$not$
Equity:$doctrine$of$part$performance$allows$a$contract$to$be$enforced$where$it$has$been$partly$performed,$to$produce$
an$equitable$outcome$

4!