Laws2111 Lecture5a 2011

Intention to Create Legal Relations (cont.)

  • Specifically the intention to be legally bound
  • Family context – generally not legally binding between husband and wife (Balfour v Balfour)
  • Objectively clear negotiations between family members can still be binding (Wakeling v Ripley)
  • Depends on the severity of the consequences (Todd v Nicol)
  • Key factors in modern cases include certainty, expense/detriment, and whether an objective analysis of the facts illustrate a contract (Riches v Hogben)
  • Social agreements and/or competition rules can also establish a ‘contract’ of sorts between the competitors (The Satanita)
  • Lotteries/competitions entries that are pooled by multiple parties (eg. 3 people ‘going in together’ on a lotto ticket) will normally be held to contain an implied contract to distribute proceeds proportionately (Trevey) but some degree of repetition, seriousness, etc. may be necessary to give rise to this.
  • General ‘presumptions’ can still be rebutted, even if they do still exist after Ermogenous.
    • Carlill – rebutted the ‘advertisements not normally offers’
    • Promise to make an ex gratia payment may still be an offer – the phrase ‘ex gratia’ is less relevant than the surrounding circumstances (Edwards)
  • Intending that a document/interaction NOT be legally binding can be achieved by clear, explicit wording (Rose & Frank v Compton)
  • Title of a document is largely irrelevant – need to examine the content, regardless of what it’s called (What exactly is a ‘Heads of Agreement’, ‘Letter of Comfort’, etc.) (Helmos v Jaylor)
  • Government schemes generally only reflect policy, and are unlikely to be held to be contractual offers, as opposed to conditional gifts (Australian Woolen Mills)
  • Educational institutions, particularly public ones, and difficulty to definitively identify exactly what they’re contracting to offer – probably nothing more than a process, if that.
  • Private teaching institutions are more likely to be held to be contracting with the students, particularly if they set out explicit procedures in exchange for specific fees (Shahid v College of Dermatologists)


  • Theory: Promises cannot be legally recognised without a quid pro quo (unless recorded in the form of a deed, specifically structured to bind without requiring consideration)
  • Informal promises can be made binding only if an intention can be objectively ascertained – generally in the form of some kind of consideration to verify seriousness.
  • Can be a benefit to one party and/or a detriment to the party it moves from (Carlill)
  • Act or forbearance given in exchange for the other parties consideration (Dunlop v Selfridge)
  • Any legally recognised consideration (even a peppercorn) is sufficient - doesn’t have to be adequate or of comparative value.
  • The motive for giving the consideration is irrelevant – only that it is something legally recognised to be of value (Thomas)
  • Need not be financial – can be circumstances advantageous to the other party (Beaton v McDivitt)
  • Differentiating exchanges of consideration from conditional gifts requires an analysis of the context (Australia Woolen Mills)
  • Must move from the promise – a third parties act cannot be sufficient consideration (Coulls v Bagot’s Executor)
  • Privity – A third party cannot sue for breach of a contract that they are not party to.
  • “Past consideration” given after the contract is finalised is not binding unless it constitutes a new contract
  • Eg. Warranty made later (after sale) is not binding as part of that contract of sale (Roscorla v Thomas)
  • Requesting a service but not promising payment until after that service is complete CAN still be a valid contract if it was understood by both parties that payment would be given upon completion (Lampleigh Braithwait – the common courtesy rule)
  • Need only be of nominal legal value, but must be of some kind of commercial value (Chappell v Nestle – this can include chocolate wrappers if the company specifically requests them, particularly since they serve as evidence of consumed chocolate)
  • Forbearance must be a genuine compromise – eg. an agreement to note sue requires the forbearing party to have believed that the case had genuine merit, even if it didn’t actually have any chance of success. Cannot have been completely frivolous
  • In general, agreeing not to sue constitutes good consideration (Wiggins)

Learning Guide Cases

Property Law Act 1974 (Qld) ss45-47 (procedure necessary for enforceable deeds)
States That: Deeds must be signed/sealed in front of a third party, and ‘delivered’ in some way to constitute a binding instrument. No consideration is required to be exchanged.

Australian Woollen Mills v Cth
Relevant To: Intention and Consideration – Government Policy
Issue: Was a policy scheme that promised subsidies to manufacturers who purchased Australia wool actually a unilateral contract?
Held: No – there was no intention to create legal relations, and the wool was merely a condition of obtaining the gifted subsidy, it did not constitute consideration for a promise.

*Beaton v McDivitt
Relevant To: Consideration – quid pro quo
Issue: Was the benefit of having a tenant/neighbour interested in the same crazy organic farming style as you sufficient to constitute consideration for transferring ownership of land?
Held: No (Kirby) because he suffered no detriment in moving to the land (was functionally homeless at the time) or Yes (Majority) – the benefit of having someone interested in organic farming working the land combined with the potential rate reduction was sufficient consideration. Emphasis was placed on the quid pro quo bargaining theory behind consideration.

Coulls v. Bagot’s Executor
Relevant To: Consideration – joint consideration/privity
Issue: Was a wife party to a contract that she signed, but only her husband/the construction company gave consideration for?
Held: Yes – she was intended to be a party to the contract, and when a promise is made specifically to joint promisees, they are both able to benefit from it.

Pao On v Lau Yiu Long
Relevant To: Consideration – past consideration/economic duress
Issue: Was fulfilling a contract with a third party sufficient consideration, and if so did the threat of not fulfilling that contract unless indemnified constitute economic duress?
Held: Yes, fulfilling a third party contract can be sufficient consideration – and economic duress requires a complete coercion of the will, which was not present here.

Chappell v Nestle
Relevant To: Consideration – sufficiency
Issue: Were chocolate wrappers part of the consideration provided for the record in a Nestle promotion?
Held: Yes – people had to spend money to obtain the wrappers, and Nestle specifically requested them. “A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.”

Glasbrook v Glamorgan County Council
Relevant To: Consideration – existing statutory duty
Issue: Was performance of public duties (police protection) to a higher standard than would otherwise have been given good consideration?
Held: Yes, it was – performing a statutory duty is not good consideration, but as long as the service goes above the minimum required by statutory duty, it CAN still constitute good consideration.

Popiw v Popiw
Relevant To: Intention - family relations. Consideration - existing duty.
Issue: Was a husband's promise to transfer his house to their joint names if his wife returned to live with him intended to be legally binding, and if so, did her return constitute sufficient consideration?
Held: Yes, it was - the law would not have forced her to live with him, so her return constituted valid consideration, and the arrangement was not of a type 'made in the ordinary course of a matrimonial relationship', and they went so far as to visit the solicitor to begin arrangements. (That said, it ultimately failed because it wasn't in writing, which was a statutory requirement for real property transfers)

Williams v Roffey
Relevant To: Consideration – practical benefit
Issue: Could the performance of an existing duty in a timely fashion constitute good consideration for additional payment if the other party derived a practical benefit from it?
Held: Yes, provided there was no economic duress and a real practical benefit, taking into account the net benefit of the agreement compared to the net benefit of exerting strict legal rights.

*Musumeci v Winadell
Relevant To: Consideration – practical benefit
Issue: Could the performance of an existing duty (lease agreement) constitute good consideration for a new agreement to pay less if the other party derived a practical benefit from it? (Not having to find new tenants, sue for breach, etc.)
Held: Yes, it could – although the maths involved in determining the extent of the benefit seemed to be absent. (Note: Not necessarily good law in Qld – but has been mentioned by High Court in DDP v Le, and applied once in Qld in Michell v Pacific Dawn)

Foakes v Beer
Relevant To: Consideration – part-payment of existing debt
Issue: Is part payment of an existing debt ordinarily good consideration?
Held: No, it is not (unless you can establish a practical benefit ala Williams or Musumeci)

Sundell v Yannoulatos
Relevant To: Consideration/consent – economic duress
Issue: Did a refusal to provide the product at the negotiated price (unless more was provided) constituted sufficient economic duress to prevent the new contract from superseding the old one?
Held: Yes, it did – there was no true consent for the increased price, as you cannot insist on a settlement achieved by intimidation.