Contract W1: Formation (Pt 1)

Acknowledgement of Country

• The land on which the University and Law School stand is the traditional land of the Kaurna people.

• Respect is extended to their spiritual relationship with their country.

• Their cultural and heritage beliefs are recognized as being as significant to the living Kaurna people today as they have always been.

• This land embodies lore practiced for thousands of generations.

• This history is remembered and respected in the teaching of law to present and future members of the legal profession.

Standard Formation and Formal Requirements

• With specific exceptions such as deeds or land sale agreements, contracts are not required to be in any particular form.

  • Reference: $Beckham v Drake (1841) 9 M \& W 79$.

• Historical Context: In medieval times, a handshake was considered sufficient for formation.

• Standard Methods: Contracts can be established through words, writing, or a combination of both.

• Conduct: In rare instances, mere conduct can generate a contract.

  • Reference: $Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153$.

  • Reference: $Empirnall Holdings Pty Ltd v Machon Paull Partners (1988) 14 NSWLR 523$.

• Practical Challenges:

  • Establishing contractual agreement is significantly more difficult without documentation.

  • Determining the form and content is difficult when terms are distributed across multiple documents and conversations.

  • Contractual liability can be easily assumed unintentionally.

The Four Central Elements of a Valid Contract

• A valid contract requires four central elements:

  1. Agreement (comprising offer and acceptance).

  2. Consideration.

  3. Intention to create legal relations.

  4. Certainty and completeness of terms.

• Reference: $Blue v Ashley [2017] EWHC 1928$ at [$49$].

• Failure of Element: If any element is missing or defective, the contract fails and the agreement is not legally enforceable.

• Ancillary Requirements:

  • Parties must possess legal capacity to contract.

  • The agreement must be lawful.

• Interaction of Elements: Elements often overlap; for example, the specific words used may indicate an offer, an acceptance, and the objective legal intent simultaneously.

• Jurisdictional Variations: Other jurisdictions may blur these elements; for instance, in the United States ($US$), "agreement" often encompasses both intention and certainty.

Objective Exercise of Contractual Existence

• Establishing the presence and effect of a contract is an objective exercise.

  • Reference: $Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179$.

  • Reference: $Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39$ at [$43$], [$83$].

• Subjective Intent: The actual or subjective intentions of the parties are usually disregarded, especially when they remain uncommunicated.

  • Reference: $Day v Gapes [2025] SADC 83, [94]$.

• Consequences: This objective approach can lead to situations where parties are bound by an interpretation that neither party actually intended.

  • Reference: $David McLauchlan, \text{"The Contract That Neither Party Intends"} (2012) 29 Journal of Contract Law 26$.

• Reasonable Person Standard: The test is established by what a reasonable person in the position of the parties would have understood.

  • If a reasonable person would understand that an enforceable agreement was made, the courts give it effect.

  • The specific standard for the reasonable person is that of a "reasonable businessperson."

  • Reference: $Ecosse Property Holdings v Gee Dee Nominees (2017) 261 CLR 544, 551$.

Bilateral and Unilateral Contracts

• Promisor: The party making the promise.

• Promisee: The party receiving the promise.

• Bilateral Contracts:

  • Formed through an exchange of promises.

  • Obligations arise at the point of agreement.

  • The promisee is legally bound to perform.

  • Example: Noel asks Amina to build a website for $\$1,000$. Amina says she can do the job for that price. Noel agrees. This is bilateral because Noel promised money and Amina promised the service.

• Unilateral Contracts:

  • Formed through one party making a promise while the other party performs a specified act in response.

  • Obligations arise only when the promisee performs the specified act.

  • The promisee is not bound to perform but chooses to do so.

  • Example: Noel advertises a reward of $\$500$ for the return of his lost cat. A person who sees the poster is not obliged to look for the cat. However, if Amina finds and returns the cat, a contract is formed, and Noel owes the $\$500$.

Identification of an Offer

• Definition: An offer is a proposal by the offeror to enter into a binding contract on certain terms with the offeree, providing the offeree the opportunity to accept or reject those terms.

  • Reference: $Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 171$.

• Required Intent: An alleged offer must be reasonably understood as intended to lead to a contract if accepted.

  • Reference: $Carlill v Carbolic Smoke Ball [1893] 1 QB 256$.

• Exclusions (Communications that are not offers):

  • Supply of Information: Providing item specifications or mentioning a price one would be willing to accept.

    • Reference: $Harvey v Facey [1893] AC 552$.

  • Puffs: Bold, hyperbolic, or exaggerated claims about a product or service.

    • Examples: "Best Greek food in Adelaide," "Australia's most trusted bank."

    • Legal Status: Puffs are not meant to be taken literally, and a degree of puffery is expected in commercial dealings.

    • Reference: $General Newspapers v Telstra Corporation (1993) 45 FCR 164$.

    • Reference: $Kommer v Ford Motor Co, US Dist LEXIS 118335 (2017)$ regarding the slogan "Built Ford Tough."

    • Reference: $Leonard v Pepsico, Inc 88 F. Supp. 2d 116 (1999)$ (The Pepsi Harrier Jet advertisement).

  • Promissory Statements: If a puff goes beyond sales talk into factual statements, it becomes promissory.

    • Reference: $Sabre Corporation v Laboratories Pharm-A-Care Pty Ltd (1995) 31 IPR 445$.

    • Standard for Fact vs Puff: Puffs typically cannot be objectively verified; factual statements can.

    • Reference: $REA Group Limited v Fairfax Media Limited [2017] FCA 91$.

Invitations to Treat

• Definition: Indicators of a party's willingness to negotiate; they invite other parties to make offers.

• Shop Sales: Goods displayed in shops are invitations to pay the requested price or negotiate, not offers.

  • Reference: $Pharmaceutical Society v Boots Cash Chemists [1953] 1 QB 401$.

• Advertisements and Catalogues: Generally invitations to treat.

  • Reference: $Partridge v Crittenden [1968] 2 All ER 421$.

  • Exception: If the language indicates a firm offer and an intent to be bound, it becomes an offer.

  • Reference: $Lefkowitz v Greater Minneapolis Surplus Store, 86 NW 2d 689 (1957)$.

• Auctions:

  • A call for bids is an invitation to treat.

  • The auctioneer (as agent for the vendor) can accept or reject the highest offer.

  • Bidders can withdraw a bid before acceptance.

  • Contract formation occurs "when the hammer falls."

  • Reference: $Seivewright v Brennan (2005) 12 BPR 22,979$.

  • Statutory Rule: $Sale of Goods Act 1895 (SA), s\,57$.

  • Reserve Price: It appears an auctioneer can reject the highest bid even if there is no reserve price.

  • Reference: $AGC (Advances) v McWirter (1977) 1 BPR 9454$.

  • Reference: $Smythe v Thomas (2007) 71 NSWLR 537$ (concerning eBay auctions).

• Tenders:

  • A call for tenders is generally an invitation to treat; the submitted tenders are the offers.

  • Possible "process contracts" may exist.

  • Reference: $Hughes Aircraft Systems v Airservices Australia (1997) 76 FCR 151$.

  • Reference: $Dockpride Pty Ltd v Subiaco Redevelopment Authority [2005] WASC 211$.

• Online Proposals: There is a presumption that proposals made through generally accessible electronic communications (websites) are invitations to treat.

  • Reference: $Electronic Communications Act 2000 (SA)$.

Revocation and Lapse of Offers

• Timing: An offer can be revoked at any time prior to acceptance.

  • Reference: $Dickinson v Dodds [1876] 2 Ch D 463$.

• Receipt: Revocation is only effective upon receipt by the offeree.

  • Reference: $Stephenson, Jacques \& Co v McLean (1880) 5 QBD 346$.

• Lapse: An offer lapses if not accepted within a reasonable time if no deadline was stipulated.

  • Reference: $Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109$.

• Unilateral Revocation: Whether an offer for a unilateral contract can be revoked after performance has commenced depends on the circumstances.

  • Reference: $Mobil Oil Australia v Wellcome International (1998) 81 FCR 475$.

• Options: A promise to hold an offer open for a specific time is generally not binding unless the offeree provides consideration, creating an enforceable "option."

  • Reference: $Goldsbrough Mort \& Co Ltd v Quinn (1910) 10 CLR 674$.

Acceptance of an Offer

• Consensus ad idem: Acceptance occurs when there is unqualified assent to the stipulated terms.

• Consciousness of Offer: To accept an offer, the offeree must be conscious of it.

  • Reference: $R v Clarke (1927) 40 CLR 227$.

• Presumption of Reliance: It is presumed a party acts on the faith of the offer.

  • Reference: $New York Star (1978) 139 CLR 231$.

• Silence: Silence is generally not considered acceptance.

  • Reference: $Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037$.

  • ACL: The Australian Consumer Law prohibits "inertia selling" under $ss\,39-43$.

• Inferred Acceptance: Conduct may infer acceptance in specific circumstances.

  • Reference: $Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523$.

  • Reference: $Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61$.

• Precision: It is not strictly necessary to identify a precise time or a precise offer and acceptance.

  • Reference: $Mushroom Composters Pty Ltd v IS \& DE Robertson [2015] NSWCA 1$ at [$60$].

• Prescribed Mode: Acceptance must follow the mode prescribed by the offeror.

  • Reference: $Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1954) 76 WN (NSW) 72$.

Termination and Rejection of Offers

• Termination by Rejection: Once rejected, an offer is terminated and cannot be subsequently accepted unless the offeror renews it.

  • Reference: $Tinn v Hoffman \& Co (1873) 29 LT 271$.

  • Reference: $Fletcher v Minister for Environment (1999) 73 SASR 474$.

• Counteroffers: A counteroffer acts as a legal rejection of the original offer.

  • Reference: $Harris v Jenkins [1922] SASR 59$.

• Request for Information: A mere request for or provision of information is not a counteroffer and keeps the original offer alive.

  • Reference: $Harvey v Facey [1893] AC 552$.

  • Reference: $Stephenson, Jacques \& Co v McLean (1880) 5 QBD 346$.

Communication of Acceptance

• General Rule: Acceptance is effective only when received by the offeror.

• Postal Acceptance Rule:

  • Applicable when acceptance is expected to be sent by post.

  • Acceptance is effective the moment it is sent, even if delayed or lost.

  • Reference: $Household Fire and Carriage Accident Insurance v Grant (1879) LR 4 Ex D 216$.

  • Note: This rule is inapplicable to instantaneous forms of communication like telephone or telex/fax.

  • Reference: $Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34$.

• Electronic Communication Standard:

  • Emails are generally considered effective only on receipt.

  • Reference: $Olivaylle v Flottweg (2009) 255 ALR 632$.

  • Reference: $Winter v GHD Services (2019) 285 IR 331$.

• $Electronic Communications Act 2000 (SA)$ Defaults:

  • $s\,13$: Transmission occurs once communication leaves the information system under the sender's control.

  • $s\,13A$: Receipt occurs when the communication is capable of retrieval by the addressee at their electronic address.

  • $s\,13B$: Governs the deemed place of transmission and receipt.

  • $s\,14C$: Contracts formed via automated message systems (without natural person intervention) are not invalid solely because no person reviewed the actions.

  • Parties can agree to override these default rules.

Complex Formation Scenarios

• Battle of the Forms:

  • Occurs when parties agree on essential terms but use inconsistent standard form agreements.

  • The English approach is the "last shot prevails," where the sender of the last form is seen as making a counteroffer that the other party accepts through performance.

  • Reference: $Butler Machine Tool Co v Ex-Cell-O-Corp (England) Ltd [1979] 1 WLR 401$.

• Informal Platforms:

  • Contracts can be made via text message ($Avopiling (WA) Pty Ltd v Central Systems Pty Ltd [2015] WASC 82$).

  • Contracts can be made via IM platforms ($CX Digital Media v Smoking Everywhere, 2011$).

  • Contracts can be made via WhatsApp ($Jaevee Homes Ltd v Fincham [2025] EWHC 942$).

  • Contracts can be made via email, sometimes accidentally ($Feldman v GNM Australia Ltd [2017] NSWCA 107$).

  • The use of emojis can have contractual weight ($South West Terminal Ltd v Achter Land [2023] SKKB 116$).

• Automatic Machines:

  • Vending Machines: Generally perceived as an offer because the vendor has no choice but to accept once payment is made.

  • Carpark Ticket Machines: Generally making an offer. Once the ticket is taken, the parties are bound to the terms.

  • Reference: $Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163$.

• Commercial Drifting: In long-term relationships, parties may "drift" into contractual relationships without orthodox analysis of offer and acceptance.

  • Reference: $Integrated Computer Services v Digital Equipment (1988) 5 BPR 11,110$.

  • Reference: $Macdonald v Australian Wool Innovation Ltd [2005] FCA 105$ at [$182$].

Consideration

• Definition: The "exchange" element of a contract; the exchange of something of sufficient legal value.

• Requirement: A promise is not binding without consideration.

  • Reference: $Burgess v Lejonvarn [2016] EWHC 40$ at [$151$].

• Exclusion: Consideration is not required if the agreement is captured in a deed.

• Function:

  • Distinguishes gifts from bargains.

  • Ensures value is exchanged.

  • Provides infrastructure for enforcing serious undertakings.

  • Described as "the glue that binds the parties to a contract together."

Elements of Consideration

• Element 1: Benefit or Detriment:

  • A valuable consideration may consist of a right, interest, profit, or benefit to one party, or some forbearance, detriment, loss, or responsibility undertaken by the other.

  • Reference: $Currie v Misa (1875) LR 10 Ex 153$ at $162$.

• Sufficiency vs Adequacy:

  • Consideration must be sufficient, but it need not be adequate.

  • Reference: $Chappell \& Co Ltd v Nestle Co Ltd [1960] AC 87$.

  • There is no requirement to prove a "fair" price was paid.

  • Consideration must have "some value in the eye of the law."

  • Reference: $Thomas v Thomas (1842) 2 QB 851, 859$.

  • A peppercorn is sufficient value ($Varma v Varma [2010] NSWSC 786, [462]$).

  • Renault purchased the Lotus Formula 1 team for $\pounds 1$ in $2015$.

• Questionable Examples of Sufficient Consideration:

  • A promise not to visit or annoy someone ($Jamieson v Renwick (1891) 17 VLR 124$).

  • A promise to a nephew not to smoke or swear ($Hamer v Sidway, 124 NY 538 (1891)$).

  • Canaries and tomtits ($Couldery v Bartrum (1881) 19 Ch D 394$).

• Illusory or Empty Promises:

  • A promise cannot be illusory. If a party has absolute discretion whether or not to perform, it is not good consideration.

  • Reference: $Placer Development Ltd v Commonwealth (1969) 121 CLR 353$.

• Lawfulness: A promise must be for something legal.

  • Reference: $Kerridge v Simmonds (1906) 4 CLR 253$ at $263-4$.

• Element 2: Bargain:

  • The subject matter must be given in return for the other party's promise (price for a promise).

  • Reference: $Dunlop Pneumatic Tyre Co Ltd v Selfridge [1915] AC 847$ at $855$.

  • Requires quid pro quo ($Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424$).

  • Past Consideration: Consideration cannot be past; acts already performed before the promise are generally insufficient.

    • Reference: $Roscorla v Thomas (1842) 3 QB 234$.

    • Compare: $Re Casey’s Patents [1892] 1 Ch 104$.

  • Reliance: Reliance by the promisee is not sufficient bargain for consideration.

    • Reference: $Beaton v McDivitt (1987) 13 NSWLR 162$.

Practical Implementation of Consideration

• Express Evidence: Consideration is often obvious from circumstances (exchange of money, goods, or services).

• Consideration Clauses: Some contracts explicitly state "in consideration of X doing Y…"

• Schedules: In employment agreements, specific remuneration details (the consideration) are often placed in separate schedules for readability and customization while keeping the main body of the contract standard.