1HI6027 Week 2Sample questions and answersEssential elements to create a simple valid contractINTENTION TO CREATE LEGAL RELATIONSDavid was unemployed and suffered from a number of disabilities. To tryto 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 orderto determine whether David was capable of doing the job. Under thearrangement, Sam agreed to pay David $25 per hour as a starting rate; ifhe proved that he could complete the task, they would then discuss therate of payment again. As David was climbing a ladder to start thepainting, he fell off it and was injured.Is there a contract of employment in existence so that David would beentitled to claim workers’ compensation? Discuss.Suggested answerThe essence of a contract is that the promise or promises made and thecreation of an obligation between the parties is one that the courts will enforce.The parties must intend for their agreement to have legal consequences. Wherethe intention of the parties is not immediately obvious from their agreement, thecourt will use an objective test of the reasonable person to try to determine theintention of the parties.The starting point for a court in this position will always be to classify theagreement as ‘social or domestic’ or ‘business or commercial’. The court willthen look at what was agreed to by the parties, the circumstances surroundingthe agreement, what sort of words they used, the effect of the agreement on theparties, and how they have subsequently acted to try to determine the intentionof the parties.From the facts, it would seem that Sam and David are friends. As such, theagreement between them would ordinarily be classified as falling into the socialcategory. Generally, in social agreements involving friends, the presumption isthat the parties do not intend to create legal relations. However, this is only apresumption 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 onthe balance of probabilities that a contract was intended. The court will apply anobjective test, based on the reasonable person. Relevant factors the court willconsider 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 their2concurrence—that is, how clear are the terms setting out the rightsand 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 substantialdetriment involved;• whether litigation was contemplated if one of the parties didn’t perform theirpart of the bargain; and• whether the agreement was formal or informal—for example, oral andnot reduced to writing.In order to try to rebut the presumption, David would point to the commercialnature of the agreement – payment for services rendered – for which he had dulycommenced the relevant conduct when he suffered the fall.Alternatively, if Sam and David are not friends, it will be easier to argue that theagreement between them was of a ‘business or commercial nature’.However, in either situation, Sam could argue that, even if legal relations werefound to exist, they were subject to the condition precedent that David werephysically able to paint the house as the agreement clearly stipulated that it wasto commence on a ‘trial basis’ and on a fee that was open to negation if Davidcould fulfil the job. Since David had not satisfied this condition precedent, Samcould argue that therefore there existed no legally enforceable contract at thetime of David’s fall and thus he was not entitled to workers’ compensation asDavid was not an employee.To establish that he was eligible for workers’ compensation, David mustestablish 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.AGREEMENT (OFFER AND ACCEPTANCE)Andrew offered to purchase Rob’s house and gave Rob six weeks for adefinite 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 answerThis 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 whichto indicate his acceptance or rejection of the offer. From the information given inthe question, it seems that no consideration has been given to keep the offeropen by Rob. If consideration had been provided by Rob to keep the time periodopen then, as in the case of Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR674, there would have existed an option contract and Andrew would then havehad no right to withdraw the offer until the expiry of the agreed six weeks.3As it appears that Rob has given no consideration to keep the promise open, asin Routledge v Grant (1828) 4 Bing 653, the court would come to the conclusionthat before Rob bought another house he should have accepted the offer. Itmakes 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 heexpected to sell. A promise unsupported by consideration will not be binding onthe offeror and may be withdrawn at any time up until acceptance or the timeperiod lapses.CONSIDERATIONConsider the following situations and indicate whether consideration ispresent and whether Jack has an enforceable agreement:a Jane is going overseas and she offers to give her Lotus Super 7sports car to Jack. The market value for this type of vehicle in goodcondition 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 answerFor something to be good consideration it must have a value in the eyes of thelaw. 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 thepromisee need not necessarily be equal in value to the promisor’s promise. Notethough that it must have some value.As a general rule, the courts do not concern themselves with the adequacy ofthe consideration. Contracts are seen as agreements freely entered into by theparties and it is not seen as the role of the courts to determine whether or notadequate value has been given, or whether or not the agreement is harsh oronerous, as long as there is at least some consideration given. ‘Good’consideration to support a simple contract at common law can be nominal ortrivial, but it must be sufficient, and this means that it must have some legalvalue.Most things that make up consideration will have an intrinsic value, althoughsometimes the acts or omissions that go to make up the consideration may be ofvery small or even of no apparent intrinsic value. For example, the chocolatewrappers in Chappell & Co Ltd v Nestlé Co Ltd  AC 87 were of little valueto the buyer and were in fact thrown away by the seller, but they still formed partof the consideration because they had a special value for the promisor. Theleasing of houses, schools and city buildings at a rental of one peppercorn per4year is another example where the courts are not concerned with the adequacyof the consideration and are prepared to hold that the trivial nature of thepeppercorn rental may make up sufficient consideration to support a simplecontract.In answer to this question:a. Jack has not promised anything in return for Jane’s promise to give himher 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 ismuch less than market value, but it is some value and thereforesufficient. Consideration is present. This agreement is enforceable.
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