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Week 6: Making deals Forming a Contract Suggested Solutions QUESTION 1 These facts are from the Australian case of Todd v Nicol. The case bears a remarkable similarity to Wakeling v Ripley (in your text). Both cases are concerned with plaintiffs who sell up and shift locations/cities to move in with older relatives based on promises to inherit eventually under the older relatives wills. The problem for the plaintiffs is that in family or domestic arrangements, there is a presumption in law that there is no intention to be legally bound (Balfour v Balfour). However, this is a rebuttable presumption and the plaintiff has the onus to prove otherwise. Where the consequences of a domestic promise are serious if acted upon, the courts may be prepared to say that there was an intention to create legal relations. In Wakeling v Ripley, it was held that on the evidence the parties did intend to enter a binding and enforceable contract as the consequences were so serious. The plaintiffs gave up well-paid jobs in England and sold their property to move to Sydney. The exchange of documents (letters) and the changing of the defendants will added further weight to the rebuttal of the above presumption. Accordingly, the facts here indicate that there is a contract. The presumption that there is no intention to be legally bound can be rebutted because of the serious economic consequences. They may also have a ground for action in promissory estoppel (Waltons Stores v Maher).

QUESTION 2 Sam, the employee, made a mistake when pricing the golf clubs. Clearly, Pete, the shop owner, does not want to sell the golf clubs at $50, as he intended to sell the clubs for $500. However, is Pete contractually bound to supply the golf clubs to Norm for $50? The display of goods, like an advertisement, is generally considered to be an invitation to treat, not an offer (Pharmaceutical Society of Great Britain v Boots Cash Chemists). Thus, the display of the golf clubs in the shop does not constitute an offer. There is no offer for Norm to accept. Thus, under contract law, when Norm tells Pete that he will pay $50 for the clubs he is effectively making an offer to buy the clubs. Pete can either accept or reject Norms offer. In conclusion, Pete is not contractually bound to sell the clubs at $50. However, he can make a counter offer to sell the clubs at $500 which Norm may either accept or reject.

QUESTION 3 The legal issue in this problem is whether there is an agreement (offer and acceptance) under contract law. Advertisements in newspapers are generally regarded as invitations to treat, as was established in Partridge v Crittenden. However evidence may indicate that the party placing the advertisement intended the advertisement to be an offer. This was the case in Carlill v Carbolic Smoke Ball Co where the court held that the relevant advertisement was an offer. There the advertisement promised a reward to anyone who bought and used the carbolic smoke ball and still caught one of the illnesses specified in the advertisement. It was found that the advertisement showed willingness by the company to enter into legal relations with anyone who accepted the offer of the reward. On the fact of this problem, the nature of the advertisement indicates it is a clear offer to be bound providing the terms are met the terms being the return of the watch. However, for there to be a valid agreement, there must be valid acceptance of the offer. One of the requirements for acceptance is that acceptance occurs with the knowledge of and in response to the offer (R v Clarke). Here, the advertisement was an offer, but there was no valid acceptance of the offer - the acceptance (the returning of the watch) was not in response to the offer. Y was not aware of the advertisement and the reward when Y returned the watch. In conclusion, there is no binding contract and thus Y has no contractual rights to the reward. QUESTION 4 As David and Jack are good friends, it first must be asked whether there is an intention to be legally bound (Balfour v Balfour). However, as this is a commercial arrangement which is in writing and which has serious economic consequences, it is likely to be considered that the parties intended to be bound contractually (Wakeling v Ripley). The next question is whether they have an agreement. David left his offer open to Jack for a week. However, Jack did not provide any consideration to David to keep the offer open. Davids offer is therefore not an option and may therefore be revoked at any time (Goldsborough Mort v Quinn). When Jack heard from a mutual friend that David had sold the car to someone else, this amounts to a revocation of the offer. In Dickinson v Dodds, it was held that an offer can be revoked where a reliable third party communicates the revocation. Thus, revocation need not be communicated by the offeror. Hearing that the car has been sold implies that the car is no longer for sale and this amounts to effective revocation. If Jack had paid David $50 to keep the offer open, that would be an option (Goldsborough Mort v Quinn). An option is a separate contract which makes the offer irrevocable. If David breaks the option contract, Jack may sue him for damages.

QUESTION 5 This problem concerns the contract law principles of agreement (offer and acceptance) and their application to a series of negotiations to determine the contractual rights, if any, of Johann and Amadeus over Ludwigs piano. (Students should also consider issues relating to intention to create legal relations.) Ludwigs advertisement for the sale of his piano was not an offer, but a mere invitation to treat (Partridge v Crittenden). Although an advertisement can constitute an offer in some circumstances (Carlill v Carbolic Smoke Ball Co), Ludwigs advertisement is not an offer because it does not set out the terms by which he intends to be bound - these are yet to be negotiated between Ludwig and any interested party. Johanns expression of his willingness to buy the piano for not more than $1,800 lacks the quality of a definite undertaking to be bound. It does not therefore amount to an offer. His statement is more likely to be regarded as a mere expression of interest or a supply of information, as in Harvey v Facey. Ludwigs retort to sell at $1,900 is an offer or counter offer (Hyde v Wrench), depending on the legal status of Johanns statement above. By offering to sell at $1,900 he indicates a willingness to be bound on those terms. In any case, it is not an option because no consideration was supplied by Johann - hence, Ludwigs offer can be revoked before acceptance (Goldsbrough Mort & Co Ltd v Quinn). In his fax to Ludwig, Johann expresses satisfaction with the offer price, but this does not amount to acceptance. It is not an absolute and unqualified expression of acceptance of Ludwigs offer to sell for $1,900. Johanns fax is more likely to be a mere request for information (Harvey v Facey). His enquiry about delivery has no legal effect on Ludwigs offer, as would a counter offer. In the subsequent discussion between Ludwig and Amadeus, Amadeus makes an offer to buy the piano subject to a condition precedent: that the piano be tuned. But Ludwigs acceptance is not done with the knowledge of or in reliance on the terms of the offer (R v Clarke) he purported to accept, but he did so without knowing the full terms of Amadeuss offer in that he failed to hear Amadeuss tuning requirement. An offer is only effective when communicated, ie perceived by the offeree. However, even if Ludwigs acceptance were valid, the condition precedent in Amadeuss offer was not fulfilled the piano was out of tune. Hence, there could not be a binding contract between Ludwig and Amadeus. Ludwigs message on Johanns answering machine cannot amount to revocation of offer because it wasnt received by Johann. Revocation is not effective until communicated (Byrne v Van Tienhoven). However, the revocation of Ludwigs offer is arguably effective when Johann saw the sold sign pinned on the piano. Even though he wasnt informed directly by Ludwig or by a reliable third party that the offer has been revoked (Dickinson v Dodds), the circumstances would strongly imply that the piano was sold to someone else and hence the offer to Johann was no longer available.

Johanns purported acceptance of the offer by phone comes after such notice of revocation, and accordingly, there is no contract between Johann and Ludwig.

QUESTION 6 This question requires discussion of two separate elements of contract. These are: 1. OFFER & ACCEPTANCE and 2. CONSIDERATION. 1. OFFER AND ACCEPTANCE In general, a classified advertisement is regarded as an INVITATION TO TREAT and not an offer (according to Partridge v Crittenden). This is so for practical reasons; if it were otherwise, then all people affirmatively responding to an advertisement could bind the advertiser in a contract. This reasoning is inapplicable to the advertisement of a reward, since the only person capable of accepting a reward offer is the person returning the goods. Accordingly, the advertisement of a reward is generally regarded as an OFFER (and not an invitation to treat). Assuming that the reward in this case is advertised, it is indeed an offer. According to R v Clarke, acceptance must be in reliance on the offer. If Errol is not aware of the reward (and learns of it subsequently), he is certainly not entitled to claim it. Even if he is so aware, he may be prevented from claiming the reward if he did not return the goods in reliance on the reward. The fact that he is performing a duty of employment suggests that he was not acting in reliance on the reward here. In R v Clarke, the court held that mere awareness of a reward does not necessarily constitute reliance. In that case, Clarke (while aware of a reward for information leading to the conviction of wanted murderers), gave the relevant information to police to escape hanging. His motivations showed a lack of reliance on the reward. This same argument seems likely to apply here. 2. CONSIDERATION We are concerned here with the rule that CONSIDERATION NEED NOT BE ADEQUATE; IT MUST BE SUFFICIENT. The performance of a public duty already owed by law cannot be good consideration for any promise based on that conduct (according to Glasbrook Bros. v Glamorgan County Council). In that case, police were promised substantial payment for keeping order at a strike at a factory. The court held that, since the police attended in larger numbers than that which they would normally send to an industrial dispute, the police had given good consideration for the promise of payment to attend. In other words, the police had done something over and above their public duty. In this case, it is problematic as to whether Errol is doing anything over and above his duty as a policeman. Certainly, there is no consideration provided by Errol for retrieving and returning the goods while on duty. In theory, Errols efforts when off duty might represent good consideration for the reward, but there is an argument to suggest that police remain under a duty to enforce the law at all times. Based on this argument, Errol could not claim the reward since he would not be acting over and above his duty.

QUESTION 7
Katherines boss has promised her an extra $1000 if she works weekends on a finance project. This is to make up for the shortfall in staff caused by the resignation of two other staff members. For Katherine to have a contractual right to the extra money, she must show that she is doing something more than what her existing employment contract requires. Under Stilk v Myrick, if a promisee does no more than perform their existing contractual duties, they are not providing sufficient consideration for a promise of extra payment. However, Katherine is now working weekends. This appears to be more than what her employment contract requires. In Hartley v Ponsonby, if was held that doing something in excess of ones existing contractual duties is good consideration for a promise for extra payment. We need further information on the precise terms of her employment contract to see whether the weekend work falls within her agreed work load. Katherine may also possibly have a claim in promissory estoppel which operates as an exception to the requirement for consideration. Under promissory estoppel, a person can be stopped from going back on their word where: (a) the promisor intended the promisee to act in reliance on their promise, (b) the promisee suffered some detriment when acting in reliance on the promise, and (c) it would be unconscionable for the promisor to break their promise. For Katherine to make a claim for the extra $1000 based on promissory estoppel, she would need to rely on the Australian doctrine of promissory estoppel, as established in Waltons Stores v Maher This allows a party to use promissory estoppel as a cause of action (a sword). The English version of promissory estoppel, as established in Central London Property Trust v High Trees, only allows promissory estoppel to be used as a defence (a shield). This would not be effective in Katherines situation as she is seeking to make a claim for payment, not defend an action.

QUESTION 8 The legal problem for Alfred is that there is no written evidence of his parents promise to transfer part of their farm to him. It will be recalled that some contracts are not enforceable in court unless there is evidence in writing of the contract. Specifically, under s 126 of the Instruments Act 1958 (Vic) (the Victorian reenactment of s 4 of the Statute of Frauds 1677), a contract for the sale or disposition of an interest in land cannot be enforced unless it is evidenced in writing. Accordingly, the oral agreement between Alfred and his parents is unenforceable under statutory principles as the relevant formality requirements have not been complied with. However, it is necessary here to consider the application of the doctrine of promissory estoppel. Under certain circumstances, promissory estoppel provides a promisee with equitable rights in relation to a promise even though there is no consideration to support the promise or where the formalities of making a contract have not been fulfilled. Significantly, the Statute of Frauds and similar provisions (as in the Instruments Act 1958 (Vic) s 126) prescribing formalities affecting proof of contracts does not apply when an equity is created

by estoppel (Waltons Stores v Maher). Thus, promissory estoppel operates independently of any statutory writing requirements. Promissory estoppel deals with representations or promises as to future matters. It prevents a promisor from reneging on promises that they have made where it would be unconscionable or unfair for them to do so. Promissory estoppel operates in favour of a promisee where the promisee has relied on a promise and would suffer some detriment if the promisor went back on their promise. It is useful here to distinguish between the English and Australian doctrines of promissory estoppel. Under English law, promissory estoppel may only be used as a defence ( a shield) to prevent the promisor from reneging on a promise not to enforce their strict contractual rights (Central London Property Trust Ltd v High Trees House Ltd). The Australian High Court, however, has radically broadened the operation of promissory estoppel. In Waltons Stores v Maher, the Australian High Court held that promissory estoppel may be used as a cause of action (a sword) to enforce an otherwise non-binding promise. Thus, the narrow doctrine of promissory estoppel (the High Trees case) would not assist Alfred because, as indicated earlier, it can only be used as a defence to stop action on a preexisting contract. However, the broader Waltons Stores doctrine of promissory estoppel may provide Alfred with an equitable remedy. Using the Waltons Stores case as precedent, the promisee must show that they acted in reliance on a promise to their detriment and that it would be unconscionable for the promisor to renege on their promise. In applying these criteria to Alfreds case, it would appear that Alfred has a valid claim. Indeed, the facts of Alfreds case bear a number of similarities with those of Waltons Stores. First, Alfred assumed that a legal relationship would exist, given that a contract was being drawn up by lawyers to give effect to the promise. Second, his parents were responsible for this assumption, having told Alfred that a contract was being arranged by their lawyers to give effect to the transfer. Third, Alfred acted in reliance on this assumption by staying and working on the farm and by obtaining a bank loan to finance the construction of a new house. Fourth, his parents intended Alfred to act on this assumption, having promised to transfer part of their farm to him if he continued to work on the farm. Fifth, Alfred suffered detriment acting pursuant to this assumption, including working on his parents farm and taking out a loan to build a new home. Sixth, his parents failed to act to avoid Alfreds detriment. They let Alfred assume that their promise to him would be fulfilled even though they intended to give the property to their daughter. Accordingly, Alfred may make a claim for a part of his parents farm using the Waltons Stores doctrine of promissory estoppel. Finally, it is also worth noting that Alfred may also have a claim for compensation under s 18 of the Australian Consumer Law on the basis of an action for misleading or deceptive conduct by his parents.