LAW 1503 Lecture Notes - Lecture 1: Benizelos Roufos, Aust, Airservices Australia
23 May 2018
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Elements of a binding contract
A. Intention to create legal relations
B. Agreement
C. Consideration
D. Certainty & completeness
A. Intention to Create Legal Relations
1. Commercial Dealings
Step 1: In order to ascertain whether the parties have manifested an intention to be
legally bound to the agreement, the courts will assess each party's words and
conduct from the viewpoint of reasonable person standing in the other party's
place.
Step 2: it is traditionally said that intention to create legal relations is presumed to
exist for commercial dealings.
• However, in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209
CLR 95, 106 the HC court held that if there is a dispute as to the intention of
the parties, presumptions should not be used to establish intention, rather, the
party who seeks to sue must establish intention
• However, in Shahid v Australasian College of Dermatologists (2008) 168 FCR
46 at [211], the use of the presumption that legal relations are intended in
commercial agreements was reaffirmed.
Step 3: The presumption can be rebutted if
• There is contrary intention: parties to a commercial deal expressly provide
that their agreement is binding in honour, not in law Rose & Frank Co v
J R Crompton & Bros Ltd [1925] AC 445.
o This only provides that there is NO contract and does not exclude the
jurisdiction of the court.
Step 4:
• Intention found: Given that… a reasonable person would consider that the
agreement has the objective appearance of a contract.
• No intention: Based on the fact that… a reasonable person could not
consider the agreement to have the objective appearance of a contract.
3. ‘Private’ or ‘Domestic’ Arrangements
Step 1:. It is generally presumed that domestic arrangements are not intended to
have legal effect Balfour v Balfour [1919] 2 KB 571 (English case); affirmed in
Australia thorough Sion v NSW Trustee Gaurdian. But according to, Ermogenous v
Greek Orthodox Community intention must always be proven.
Step 3: The onus rests on the person seeking to enforce an agreement to prove
that the parties manifested an intention to be legally bound.
Financial
relations
Agreements
between
Other
arrangements
Commercial
arrangements
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between
spouses
spouses who
have/ are
separating
between family
members
between family
members
No binding
contract. No
legal
consequence
intended.
Balfour v
Balfour
British courts
have been
more willing to
find intention.
Merritt v Merritt
Todd v Nichol
• Intention
found when
agreement
contemplated a
permanent
arrangement.
• Degree of
reliance by the
P on the
agreement
(P moved from
overseas to
live with D in
Aust after D
promised the
family home to
her.
Agreement fell
apart).
Sion v NSW Trustee
& Guardian
• The
presumption
applies with
diminishing
force the more
remote the
family relation.
• The vaguer the
language of an
arrangement
and the greater
its formality,
the more
difficult it will
be to rebut the
presumption
Riches v Hogben
[1986] 1 Qd R 315
• Binding when a
reasonable
person would
regard it as so.
Roufos v Brewster
(1971) 2 SASR
218
• Intention
found when
parties
entered into
an agreement
in pursuit of
their
independent
commercial
interests.
• Whole
arrangement
is commercial
rather than
social or
domestic.
• Commercial
flavour
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• Large
expenditure of
P in reliance
on the
promise. (son
came to Au to
look after
mother, she
was to buy him
a house, fell
through)
Step 4:
• Intention found: Given that… a reasonable person would consider that the
agreement has the objective appearance of a contract.
• No intention: Based on the fact that… a reasonable person could not
consider the agreement to have the objective appearance of a contract.
B. Agreement (prerequisite): Offer and Acceptance (method of
determining acceptance- doesn’t need to be linear)
Memorandums of Understanding- Preliminary Agreements: when parties have
clearly reached an agreement, but contemplate formalisation
• Masters v Cameron (1954) 91 CLR 353
1. Immediately binding as a contract, but parties will draw up a further, formal
version (eg: Stirnemann v Kaza Investments Pty Ltd [2011] SASCFC 77).
Bound immediately whether or not a formal document is ever signed.
2. Immediately binding as contract, Bound to bring the formal document into
existence, but no performance required until agreement is formalised.
3. No binding contract until agreement is formalised. Not bound unless a
formal document is signed.
4. Lucke v Cleary (2011) 111 SASR 134 Fourth possibility: agreement is binding
as a contract, but parties will draw up a further, formal version with terms as
agreed
Offer
1. Offer occurs when one party has stated their terms; and Indicated their
readiness to be bound when the other party accepts them. Alleged offer must be
intended to lead to contract if accepted; Possible to have an offer to the whole world. Carlill
v Carbolic Smoke Ball Co [1893] 1 QB 256; Australian Woollen Mills Pty Ltd v
Commonwealth
o ASK: would a reasonable person would take the reward seriously?: Deposit sentence of
$1000 showed that the reward was not a mere puff in Carlil; but the policy announcement in
Australian Woollen Mills, was subject to change, hence a reasonable person would not
understand this as an offer which was intended to lead to a contract.
o Straight forward appliation of fats. Offer eause… OR no offer eause… see elow
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Document Summary
Elements of a binding contract: intention to create legal relations, agreement, consideration, certainty & completeness, intention to create legal relations, commercial dealings. Step 2: it is traditionally said that intention to create legal relations is presumed to exist for commercial dealings: however, in ermogenous v greek orthodox community of sa inc (2002) 209. 46 at [211], the use of the presumption that legal relations are intended in commercial agreements was reaffirmed. Step 3: the presumption can be rebutted if: there is contrary intention: parties to a commercial deal expressly provide that their agreement is binding in honour, not in law rose & frank co v. J r crompton & bros ltd [1925] ac 445: this only provides that there is no contract and does not exclude the jurisdiction of the court. It is generally presumed that domestic arrangements are not intended to have legal effect balfour v balfour [1919] 2 kb 571 (english case); affirmed in.
