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UNIT 5

Contract Formation Approaches


1.5.1 Objectives

At the end of this unit you should be familiar with:

the traditional requirements of a contract; and

the holistic approach to contract formation advocated by some judges.

1.5.2 Reading

Prescribed Reading:

Poole J Casebook on Contract 3rd ed, Blackstone Press Ltd, 1997 (Poole) pp20-
23

Further Reading:

Furmston pp28-30

1.5.3 Traditional versus Holistic Approach

In 1.1.3, above, it was said that there are two elements to a contract:

i. agreement, and

ii. legal enforceability.

To establish whether these elements exist to produce a simple contract in any given
situation the courts have traditionally broken the elements down further into a series of
requirements. For example, the requirements of an agreement are an offer, acceptance
and certainty of terms while, the requirements of legal enforceability are consideration
and intent to create legal relations. Traditionally, each of these requirements had to be
shown to exist before the court would find that there was a contract.

However, more recently the courts have moved away from this traditional approach.
This is visible in New Zealand Shipping Co Ltd v A M Satterwaite & Co Ltd [1975] AC 154,
at 167 where the Privy Council states that:

The traditional approach to contract requires the identification of an agreement,


constituted by an offer and a corresponding acceptance. However, it has been
suggested that these principles should not be applied too rigidly, and what is really
required is the essence of a contract. It is arguable that it is more profitable to look
at the transaction as a whole to see whether there is a contract, than to spend time
on analysing the mechanics by which the agreement was reached.

Thus, there may be instances where the courts feel compelled to find that the essence of
contract is present, even though it is difficult or impossible to analyse the transaction in
terms of the requirements discussed above and elaborated on below. Nevertheless, the
traditional requirements and rules are still dominant and the regional courts will usually
require conventional analysis to be presented in dealing with any dispute.

The remainder of this course focuses on the rules relating to the conventional
requirements for determining whether there is a simple contract.

? SELF ASSESSMENT QUESTIONS:

1. Define the following terms and think of an example of each of them:

(a) contract under seal;

(b) unilateral contract;

(c) bilateral contract.

2. Mere and William both sign a deed that states that Mere agrees to give William her
second hand car. Later Mere changes her mind and says that she is not bound by
the agreement contained in the deed, as William did not give anything in exchange
(consideration) for her promise.

Advise William.

3. Ricky receives a note from his neighbour saying that she will pay him 200v to mow
her lawns and that he can mow the lawn anytime that week. Ricky mows his
neighbours lawn within that week. Is this an executed or executory contract? Is
this a unilateral or bilateral contract?

4. Is the contract in Carlill v Carbolic Smoke Ball Company an executed or executory


contract?

5. Explain the differences between an unenforceable contract, a void contract, a


voidable contract, and an illegal contract.