LAWS105 Lecture Notes - Lecture 3: Contract, Bankruptcy Act, Corporations Act 2001
LAWS105 – CONTRACT LAW
Wk. 3 – Formation of Contracts
Intention
Who must prove intention?
The party asserting there is a contract p160.
What were the traditional key indicators?
Whether family or social; or
Was presumed no intent
Whether commercial
Was presumed there was intent
Should presumptions still be used?
Ermogenous v Greek Orthodox Community [2002] 209 CLR 95
In Ermogenous, their Honours considered use of presumptions could (wrongly)
lead to the conclusion there was no intention here (because of the nature of the
employment contract) without full consideration of the circumstances surrounding this
particular contract. Their Honours considered the Full Court in error in inferring there
was no intention here. In a separate judgment Kirby J reached the same conclusion.
Is the nature of the relationship between the parties still relevant?
1. Domestic, Family Agreements
The parties do not usually intend to create legal relations – at least when the agreement is
entered into whilst relations are harmonious (contrast, for example, a situation when
husband and wife entered into a divorce settlement).
Balfour v Balfour [1919] 2 KB 571
Jones v Padavatton [1969] 2 All ER 616
Ashton v Pratt [2015] NSWCA 12.
Evans v Secretary, Dept of Families, Housing, Community Services and Indigenious
Affairs [201] FCACF 81.
2. Commercial Agreements
What is the normal (not presumptive) situation?
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Parties intend to be bound
Subjective or objective test?
Objective
Who has the burden of proof?
Party seeking to enforce the contract
How can parties avoid intent?
Honour clauses
Letters of comfort
3. Agreements with the Government
Normal commercial agreements likely to have intent
E.g. buying goods and services
Policy-based agreements may not
E.g. Australian Woollen Mills (1954) 92 CLR 424
E.g. Admin of PNG v Leahy (1961) 105 CLR 6
Summary
Intention to create legal relations is an essential element of contractual formation
Objective test determines whether intention exists
Air Great Lakes
Plaintiff has onus of proving intention
Ermogenous v Greek Orthodox Church
In practice, while not presumptive, the nature of the relationship will assist in
determining whether ‘objective’ intent exists
Domestic/personal relationships - Intention is less likely to exist
Commercial relationships - Intention is more likely to exist (easier to prove)
Capacity to Contract
What do we mean by capacity?
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Capacity to make an enforceable agreement
The Classes of people that give rise to capacity issues are -
Those with a mental disorder
The intoxicated
Bankrupts
Minors
Companies
The Crown
Mental Incapacity
Two stage process
Contract voidable if-
1. As a result of mental incapacity they are unable to understand nature of the
contract
2. AND the other party knew this (or should have)
The contract need not be unfair (though unfairness may show lack of capacity)
Who has the onus of proof?
Party seeking to withdraw from contract
What if party subsequently wants to go ahead with the contract?
May ratify it after incapacity passes or during a lucid period p177
Sale of goods exception
A person lacking mental capacity to contract must still pay for necessities they
purchase : see s 7 Sale of Goods Act 1923 (NSW) and see s7(1) Goods Act 1958
(Vic)
Intoxication
Three Stage Process
Contract voidable if –
1. Contract party is so intoxicated (or affected by drugs) that cannot understand what
they are doing
2. AND this was known to the other party
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Document Summary
The party asserting there is a contract p160. Ermogenous v greek orthodox community [2002] 209 clr 95. In ermogenous, their honours considered use of presumptions could (wrongly) lead to the conclusion there was no intention here (because of the nature of the employment contract) without full consideration of the circumstances surrounding this particular contract. Their honours considered the full court in error in inferring there was no intention here. In a separate judgment kirby j reached the same conclusion. Is the nature of the relationship between the parties still relevant: domestic, family agreements. The parties do not usually intend to create legal relations at least when the agreement is entered into whilst relations are harmonious (contrast, for example, a situation when husband and wife entered into a divorce settlement). Balfour v balfour [1919] 2 kb 571. Jones v padavatton [1969] 2 all er 616. Evans v secretary, dept of families, housing, community services and indigenious.
