Contract W2: Formation (Pt 2)

Flashcards covering contractual formation elements including intention, certainty, completeness, capacity, and formalities based on Week 2 lecture notes.

Agreement

One of the 4 requirements of a valid contract, consisting of offer and acceptance.

Consideration

One of the 4 essential elements for forming a valid contract, along with agreement, intention, and certainty.

Intention to create legal relations

The requirement that parties must intend for their agreement to be legally enforceable and carry associated consequences.

Certainty and completeness

The requirement that the terms of a contract must be sufficiently defined and all essential terms must be included.

Objective test of legal intent

The method where the court asks if reasonable people would regard an agreement as intended to be binding based on the situation of the parties.

Merritt v Merritt [1970]

A case establishing that legal intent is determined objectively by looking at the situation rather than into the minds of the parties.

Darzi Group Pty Ltd v Nolde Pty Ltd [2019]

A case stating that the determination of legal intent is made at the point of entry into the contract.

Commercial dealings

Transactions traditionally presumed to have legal intent, which is a presumption that is difficult to displace.

Domestic arrangements

Arrangements between spouses, family members, or friends that are traditionally presumed not to have legal intent.

Ermogenous v Greek Orthodox Community (2002)

A High Court of Australia case cautioning that legal intent must be proved without reliance on presumptions.

Balfour v Balfour [1919]

A case identifying that agreements between spouses are typically presumed not to have legal intent.

Jones v Padavatton [1969]

A case regarding the presumption that family members do not intend to create legal relations when making arrangements.

Trevey v Grubb (1982)

A case involving the presumption of no legal intent regarding agreements between friends.

Sion v NSW Trustee & Guardian

A case noting that the presumption against legal intent applies with diminishing force the more remote the familial connection.

Ashton v Pratt (2015)

A case stating that recourse should not be had to any presumption concerning family arrangements, but rather the surrounding circumstances.

Riches v Hogben [1986]

A case where the domestic presumption was rebutted because the agreement was essentially commercial in nature.

Edwards v Skywards [1964]

A case establishing that commercial or business transactions are presumed to be legally binding.

In honour only

An express statement used to make a commercial agreement non-binding, as seen in Rose and Frank Co v J R Crompton & Bros [1923].

MOUs

Memoranda of Understanding; arrangements where the intent behind a seemingly commercial agreement may be unclear.

Heads of Agreement

A preliminary arrangement often explored to determine its legal effect as a potentially binding contract.

Ut res magis valeat quam pereat

A Latin maxim meaning 'it is better for a thing to have effect than to be made void', endorsed by courts regarding contract certainty.

Essential terms

Critical terms of a contract without which the agreement would not be enforced by the courts.

Thorby v Goldberg (1964)

A case stating that a contract must contain all essential or critical terms as agreed between the parties to be complete.

ANZ Banking Group v Frost Holdings Pty Ltd [1989]

A case where the contract failed because too much essential detail was missing, and the court refused to write the contract for the parties.

Mechanism or formula

A workable method allowed in contracts to determine an essential term at a later time.

Royal Botanic Gardens v South Sydney Council (2002)

A case confirming that utilizing a mechanism for determining an essential term later is valid if the mechanism is workable.

George v Roach (1942)

A case where the contract failed because the specific mechanism chosen to determine an essential term did not work.

Sale of Goods Act 1895 (SA), s 8

A statute section that can help 'complete' a bargain by providing defaults for missing terms.

Gap filling

The court's use of implied terms at common law or via statute to cure incompleteness in a contract.

Certainty

The requirement that a contract's terms must be legally clear; uncertainty is not the same as being difficult to interpret.

McDermott v Black (1940)

A case which clarifies that a contract is not uncertain simply because it is hard to understand.

Upper Hunter County v Australian Chilling Co (1968)

A case stating that courts will do all possible to attribute meaning to terms unless it is literally impossible.

Severance

A method used to resolve uncertainty by removing the uncertain portion of a contract to keep the rest enforceable.

Whitlock v Brew (1968)

A case where a contract was deemed unenforceable because uncertain portions could not be clarified or severed.

Fitzgerald v Masters (1956)

A case holding that the presence of an ultimately meaningless term will not endanger the certainty of a contract.

United Group Rail v Rail Corporation NSW (2009)

A case establishing that agreements to negotiate in good faith are sufficiently certain and enforceable.

Reasonable endeavours

A phrase used in agreements that has been held by courts to be sufficiently certain, as seen in Transfield Pty Ltd v Arlo International (1980).

Capacity

A person’s legal ability to enter into a contract; absence of this generally makes contracts voidable.

Voidable

The status of a contract made with a person lacking capacity, such as a minor or intoxicated person, meaning it can be undone.

Minors

Persons under 18 who lack legal capacity to enter into contracts except for necessaries or beneficial contracts of service.

Necessaries

Goods and services needed to maintain a minor’s status or condition, for which a minor is bound to pay a reasonable price.

Mercantile Credit v Spinks [1968]

A case where a car used to travel to work was categorized as a 'necessary' for a minor.

Nash v Inman [1908]

A case where inessential goods like designer coats were held not to be necessaries for a minor.

Beneficial contract of service

An exception to minor incapacity concerning contracts for education, trade, or professional development.

Roberts v Gray [1913]

A case involving a beneficial contract of service that was treated like an ordinary legal contract for a minor.

Mental incapacity

A state where a person is incapable of understanding the contract and the other party knew or ought to have known of it.

Gibbons v Wright (1954)

A case setting the legal test for both mental incapacity and intoxication in forming a contract.

Non est factum

A legal doctrine under which an agreement may be void in extreme cases of mental incapacity.

Ratification

The secondary approval of a voidable contract by a minor after turning 18 or by an incapacitated person upon recovering sanity/sobriety.

Electronic Transactions Act 1999 (Cth), s 9

Federal legislation stating that an electronic equivalent will usually satisfy requirements for a contract in writing.