Week 3: Law of Contract
Intention to create legal relations
Consideration
An agreement itself will not create a contract
The parties must intend that the agreement would be legally binding
How do we determine if intention exists?
Reasonable person test
Agreements can be divided into two categories:
Social or domestic agreements
Commercial agreements
Ermogenous v Greek Orthodox Community of SA (CACL 4.20)
Presumption is that there is no intention to create a legally binding contract. However, this presumption can be rebutted.
Clarity of terms, cost and inconvenience, and true flavour of agreement considered by the court to determine true intentions of contract
Presumption is that there is intention to create a legally binding contract. However, this presumption can be rebutted.
"Heads of Agreement"
"Letter of comfort"
Malago Ptd Ltd v AW Ellias Engineering (call 4.130)
Banque Brussels v Australian National Industries (cacl 4.190
Rebuttal: expresses exclusion of intention
"Honor Clause"
Rose & Frank co v Jr Crompton & Bros Ltd
Government policy proposals and contracts
Courts are reluctant to hold government to promises they make in policy proposals
Not legally binding under contract law, no intentions to create legal relations
However, when governments enter into normal commercial transactions, there is a press¡umtpion that it is a legally binging contract
a promise is only legally enforceable as a contract if the promisee provides consideration in return for the promise
Needs to provide:
Something of value to the promisor
A detriment to the promisee
(doesn't have to be money, even though we call it price)
click to edit
Rules on consideration
Consideration needs to be sufficient, but not adequate
"even a peppercorn is good consideration"
Consideration must be illusory or uncertain
It must be possible to objectively evaluate the promise
Consideration can be executed or executory, but it can't be past
Executed
Past= the act is already done before the promise.
ex. a person works all weekend and then promised a bonus
ex. annual bonus schemes for outstanding performance over the course of the previous year
One party performs an actual act in exchange for the others party promise (ex. Carlill V Carbolic Smoke Ball Co).
Exception in (CACL 5.100)
Executory
One party gives a promise in exchange for the other party promise. (Ex. a promise to deliver goods in 7 days time, and a promise to pay for them 14 days after that)
Performing an existing obligation is not good consideration
Why? you are not providing anything of new value, as you are already required to undertake the action anyway.
Stilk v Myrick (CACL 5.140)
Glasbrook v Glamorgan CC (CACL 5.130)