HI6027 Week 2

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HI6027 Week 2
Sample questions and answers
Essential elements to create a simple valid contract
David was unemployed and suffered from a number of disabilities. To try
to get him back into the workforce, Sam arranged for David to paint his
(Sam’s) house. The arrangement was initially to be on a trial basis in order
to determine whether David was capable of doing the job. Under the
arrangement, Sam agreed to pay David $25 per hour as a starting rate; if
he proved that he could complete the task, they would then discuss the
rate of payment again. As David was climbing a ladder to start the
painting, he fell off it and was injured.
Is there a contract of employment in existence so that David would be
entitled to claim workers’ compensation? Discuss.
Suggested answer
The essence of a contract is that the promise or promises made and the
creation of an obligation between the parties is one that the courts will enforce.
The parties must intend for their agreement to have legal consequences. Where
the intention of the parties is not immediately obvious from their agreement, the
court will use an objective test of the reasonable person to try to determine the
intention of the parties.
The starting point for a court in this position will always be to classify the
agreement as ‘social or domestic’ or ‘business or commercial’. The court will
then look at what was agreed to by the parties, the circumstances surrounding
the agreement, what sort of words they used, the effect of the agreement on the
parties, and how they have subsequently acted to try to determine the intention
of the parties.
From the facts, it would seem that Sam and David are friends. As such, the
agreement between them would ordinarily be classified as falling into the social
category. Generally, in social agreements involving friends, the presumption is
that the parties do not intend to create legal relations. However, this is only a
presumption and it may be rebutted if evidence to the contrary can be produced.
The onus will be on Richard to produce sufficient evidence to convince a court on
the balance of probabilities that a contract was intended. The court will apply an
objective test, based on the reasonable person. Relevant factors the court will
consider in this regard include:
• the type of relationship (they are friends);
• the degree of closeness of the relationship;
• the nature of the relationship at the time of the alleged agreement;
• the intention of both parties;
• whether there is a consensus among the contracting parties;
• the extent to which it is expressed to be finally definitive of their
concurrence—that is, how clear are the terms setting out the rights
and obligations of the parties;
• the subject matter or topic of the agreement;
• the way it came into existence;
• seriousness of the conduct involved;
• whether there is any expense, inconvenience or substantial
detriment involved;
• whether litigation was contemplated if one of the parties didn’t perform their
part of the bargain; and
• whether the agreement was formal or informal—for example, oral and
not reduced to writing.
In order to try to rebut the presumption, David would point to the commercial
nature of the agreement – payment for services rendered – for which he had duly
commenced the relevant conduct when he suffered the fall.
Alternatively, if Sam and David are not friends, it will be easier to argue that the
agreement between them was of a ‘business or commercial nature’.
However, in either situation, Sam could argue that, even if legal relations were
found to exist, they were subject to the condition precedent that David were
physically able to paint the house as the agreement clearly stipulated that it was
to commence on a ‘trial basis’ and on a fee that was open to negation if David
could fulfil the job. Since David had not satisfied this condition precedent, Sam
could argue that therefore there existed no legally enforceable contract at the
time of David’s fall and thus he was not entitled to workers’ compensation as
David was not an employee.
To establish that he was eligible for workers’ compensation, David must
establish that he was an employee of Sam’s at the time of the fall, which,
whether friends or not, seems like it will be difficult for him to do.
Andrew offered to purchase Rob’s house and gave Rob six weeks for a
definite answer. Rob, on the basis of this offer, bought another house.
Before the six weeks expired, but after Rob had bought the second house,
Andrew withdrew his offer. Is Andrew entitled to do this?
Suggested answer
This question deals with the problem of offer and acceptance and, in particular,
with withdrawal/revocation of an offer.
Andrew has offered to purchase Rob’s house and given Rob six weeks in which
to indicate his acceptance or rejection of the offer. From the information given in
the question, it seems that no consideration has been given to keep the offer
open by Rob. If consideration had been provided by Rob to keep the time period
open then, as in the case of Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR
674, there would have existed an option contract and Andrew would then have
had no right to withdraw the offer until the expiry of the agreed six weeks.
As it appears that Rob has given no consideration to keep the promise open, as
in Routledge v Grant (1828) 4 Bing 653, the court would come to the conclusion
that before Rob bought another house he should have accepted the offer. It
makes no difference that Rob, relying on Andrew’s intention to maintain his offer,
had gone to the expense of buying another house in the place of the one he
expected to sell. A promise unsupported by consideration will not be binding on
the offeror and may be withdrawn at any time up until acceptance or the time
period lapses.
Consider the following situations and indicate whether consideration is
present and whether Jack has an enforceable agreement:
a Jane is going overseas and she offers to give her Lotus Super 7
sports car to Jack. The market value for this type of vehicle in good
condition is around $25 000. Jack accepts.
b Jane offers to sell Jack her Lotus Super 7 sports car for $25 000.
Market value for this type of vehicle in good condition is around
$25 000. Jack accepts.
c Jane offers to sell Jack her Lotus Super 7 sports car for $2500.
Market value for this type of vehicle in good condition is around
$25 000. Jack accepts.
Suggested answer
For something to be good consideration it must have a value in the eyes of the
law. This can be seen in the expression consideration needs to be sufficient,
but it need not be adequate and means that the consideration promised by the
promisee need not necessarily be equal in value to the promisor’s promise. Note
though that it must have some value.
As a general rule, the courts do not concern themselves with the adequacy of
the consideration. Contracts are seen as agreements freely entered into by the
parties and it is not seen as the role of the courts to determine whether or not
adequate value has been given, or whether or not the agreement is harsh or
onerous, as long as there is at least some consideration given. ‘Good’
consideration to support a simple contract at common law can be nominal or
trivial, but it must be sufficient, and this means that it must have some legal
Most things that make up consideration will have an intrinsic value, although
sometimes the acts or omissions that go to make up the consideration may be of
very small or even of no apparent intrinsic value. For example, the chocolate
wrappers in Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 were of little value
to the buyer and were in fact thrown away by the seller, but they still formed part
of the consideration because they had a special value for the promisor. The
leasing of houses, schools and city buildings at a rental of one peppercorn per
year is another example where the courts are not concerned with the adequacy
of the consideration and are prepared to hold that the trivial nature of the
peppercorn rental may make up sufficient consideration to support a simple
In answer to this question:
a. Jack has not promised anything in return for Jane’s promise to give him
her car. Consideration is not present, so the agreement is not enforceable.
b. Jack has promised to pay $25 000 in exchange for Jane’s car.
Consideration is present. This agreement is enforceable.
c. Jack has promised to pay $2 500 in exchange for Jane’s car. This is
much less than market value, but it is some value and therefore
sufficient. Consideration is present. This agreement is enforceable.

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