1. the price paid for the promise
CONSIDERATION….
the price paid for the promise

2. Benefit/detriment
“Inconvenience sustained by one party at the request of the other is enough to create a consideration. I think, therefore, that it is enough that [Mrs Carlill] took the trouble of using the smoke ball. But I think also that the [Carbolic Smoke Ball Company] received a benefit from this user, for the use of the smoke ball was contemplated by [them] as being indirectly a benefit to them, because the use of the smoke balls would promote their sale”.
Carlill v Carbolic Smoke Ball Bowen LJ at 271

3. Bargain
A promise asked for, or relied upon, as an aspect of a bargain between the parties to the contract
Dunlop Pneumatic Tyre Company v Selfridge & Company [1915] AC 847
Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424

4. “An act or forbearance of one party, or promise therof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”
Sir Frederick Pollock, adopted by the House of Lords in Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd at 855

5. “Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise there must subsist, so to speak, the relation of a quid pro quo…The necessary connection or relation between the announcement and the act is provided if the inference is drawn that [the promisor] has requested [the promise] to [do the act].”
Australian Woollen Mills v The Commonwealth at 456-7

6. Consideration Must be bargained for
Must be performed in return for a promise – quid pro quo
Is a required element in the formation of a contract
except deeds

7. Without consideration a promise cannot be enforced:
SO, only a party providing consideration can enforce a promise
Consideration must move from the promisee
But, it need not move to the promisor
Joint promissee exception- Coulls v Bagots Executor and Trustee Co (1967) 119 CLR 460

8. Dunlop Pneumatic Tyre Company v Selfridge & Company [1915] AC 847
“… in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor’s request.” Viscount Haldane LC at 853

9. Past consideration is not good consideration
Consideration may be
executory
executed
BUT, not past.
If what is done is not done as a reaction to the promise, it cannot be good consideration
Roscorla v Thomas (1842) 3QB 234
Eastwood v Kenyon (1840) 113 ER 482

10. Consideration must be sufficient, but need not be adequate
Thomas v Thomas [1842] 2QB 851
Consideration must be of value in the eyes of the law
White v Bluett (1853) 23 LJEx 36
The value need not be intrinsic – it is enough if it is of value to the promisor
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87

11. Chapple v Nestle:
“As the whole object of selling the record…was to increase the sales of chocolate, it seems to me wrong not to treat the stipulated evidence of such sales [the wrappers] as part of the consideration.”
Lord Somervell at 115

12. PRIVITY OF CONTRACT
Only parties to a contract may enforce, or be bound by, a contract

13. Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co
“My lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.”
Lord Haldane at 853

14. Coulls v Bagots Executor
“It must be accepted that, according to our law, a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations. For my part, I find no difficulty or embarrassment in this conclusion. Indeed I would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another”.
Barwick CJ at 478

15. Cases on Privity Tweddle v Atkinson Beswick v Beswick
[1861] 121 ER 762
Beswick v Beswick
[1966] 1 Ch 538.

16. Summary For a contract to be formed there must be: An Offer
Which has been Accepted
by parties who intended to create legal relations
And bargained or paid for their mutual promises in the form of Consideration
And only these parties may enforce the contractual promises (Privity)

17. Contents of the Contract
Terms

18. Term or representation?
Objective test of intention
“reasonable man”
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
Indicative factors include
Importance of statement
Time between statement and contract
Special knowledge or skill or access to truth of one party
Inclusion of statement in any subsequent document
Ellul &Ellul v Oakes (1972) 3 SASR 377

19. Term or representation
Oscar Chess Ltd v Williams
[1957] 1 AllER 325
Dick Bentley Productions v Harold Smith Motors [1965] 2 AllER 65

20. Dick Bentley case:
“[I]t seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and it actually induces him to act upon it by entering into the contract, that is prima facie ground for inferring that it was intended as a [term of the contract]. …But the maker of the representation can rebut this inference if he can show…that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.” Lord Denning MR at 67

21. What kind of term? A term may be either: a Condition a Warranty
Essential term
Breach – entitlement to terminate/or damages
a Warranty
Ancillary term
Breach – damages, but no termination
an Innominate term
Intermediate term
Breach – termination if sufficiently serious

22. Test: how essential was the promise?
“The question whether a term in a contract is a condition or a warranty, i.e. an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict, or a substantial, performance of the promise, as the case may be, and that this ought to have been apparent to the promisor….
Jordan CJ in Tramways Advertising v Luna Park

23. Tramways Advertising Pty Ltd v Luna Park
(NSW) Ltd (1938) NSWLR 633
Associated Newspapers Limited v Bancks (1951) 83 CLR 322

24. Warranty Bettini v Gye (1876) 1QBD 183 per Blackburn J said at 188:
“[a condition is] a stipulation [which] goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract a thing different in substance from what the defendant has stipulated for.”

25. Innominate terms: Hong Kong Fir
“There are, however, many contractual undertakings of a more complex character which cannot be categorised as being “conditions” or “warranties”….Of such undertakings, all that can be predicated is that some breaches will, and others will not, give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend on the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertakings as a “condition” or a “warranty”.” Diplock LJ 69/70

26. Implied terms Terms may be implied by: Trade usage or custom Statute
Courts, based on facts and circumstances of contract

27. Austral Pacific Group Ltd (in liq) v Airservices Australia (2000) 203 CLR 136
“…statutorily created and take effect by legal fiction, namely that the parties make a contract including the relevant obligations.”

28. Terms implied by Statute

29. Revise: How to read a statute
E.g. TRADE PRACTICES ACT SECT 52
Misleading or deceptive conduct  
            (1)  A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
            

30. Elements of a section: Corporation In trade or commerce
Engage in conduct
Misleading or deceptive
Defined by legislation (definitions section) or by courts (case law.)

31. Legislation Sale of Goods Act 1923 (NSW)
Contract for the sale of goods (not services)
Trade Practices Act 1947 (Cth)
Contract for supply of goods or services by a corporation to a consumer

32. Sale of Goods Act 6 Sale and agreement to sell
(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. There may be a contract of sale between one part owner and another.

33. Trade Practices Act – Part V Division 2 Conditions and Warranties in Consumer Transactions
e.g. - s 70 Supply by description  
(1)  Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer …

34. Consumer s4B TPA
    (1)  … (a)  a person shall be …a consumer if, and only if:
            (i)  the price of the goods did not exceed the prescribed amount; [$40,000]or
           (ii)  where that price exceeded the prescribed amount--the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle;
                            and the person did not acquire the goods, or hold himself or herself out as acquiring the goods, for the purpose of re‑supply or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land; and
                     (b)  a person shall be taken to have acquired particular services as a consumer if, and only if:
                      (i)  the price of the services did not exceed the prescribed amount; or
                     (ii)  where that price exceeded the prescribed amount--the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.
                                                                                        

35. Corporation – extended definition
s6 TPA
Corporation
foreign, trading or financial corporation
Persons
in trade or commerce between either of the States or territories or between Australia and places outside Australia
using post or telephonic services
active within a territory

36. Title and quiet possession
Sale of Goods Act:
17 Implied undertaking as to title etc
In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is:
(1) an implied condition on the part of the seller that in the case of a sale the seller has a right to sell the goods, and that in the case of an agreement to sell the seller will have a right to sell the goods at the time when the property is to pass,
(2) an implied warranty that the buyer shall have and enjoy quiet possession of the goods,
(3) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made.

37. Elements of s17 Contract of sale (1) condition (2) warranty
Right to sell goods
(2) warranty
Quiet possession
(3) warranty
Free from any charge or encumbrance

38. Same as:TPA s.69
             (1)  In every contract for the supply of goods by a corporation to a consumer, … there is:
                     (a)  an implied condition that, in the case of a supply by way of sale, the supplier has a right to sell the goods, …;
                     (b)  an implied warranty that the consumer will enjoy quiet possession of the goods …; and
                     (c)  in the case of a contract for the supply of goods under which the property is to pass or may pass to the consumer--an implied warranty that the goods are free, …, from any charge or encumbrance not disclosed or known to the consumer before the contract is made.
                         

39. Case example Rowland v Divall (1922) 2 KB 500
Implied condition that seller has good title

40. Correspondence with description
SGA s18: Sale by description
Where there is
a contract
for the sale of goods
by description,
there is an implied condition
that the goods shall correspond with the description; …

41. Sale by description? Ashington Piggeries v Christopher Hill
[1971] 1AllER847
Grant v Australian Knitting Mills
(1936) 54 CLR 49

42. Ashington Piggeries case:
Viscount Dilhorne:
“Did the presence of DMNA merely affect the quality of the herring meal or did it make a difference in kind? If the former, then there was no failure to deliver in accordance with the description. If the latter, there was.”

43. TRADE PRACTICES ACT 1974 - s 70 Supply by description
             (1)  Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer by description, there is an implied condition that the goods will correspond with the description, and, if the supply is by reference to a sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
            

44. Fitness for purpose SGA s19(1) Fitness for purpose Where the buyer
expressly or by implication makes known to the seller the particular purpose for which the goods are required
so as to show that the buyer relies on the seller’s skill or judgment,
and the goods are of a description which it is in the course of the seller’s business to supply (whether the seller be the manufacturer or not),
there is an implied condition that the goods shall be reasonably fit for such purpose:
Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.

45. Reliance on seller’s judgement?
Purpose made known?
Obvious purpose?
Underpants – Grant v Australian Knitting Mills
Reliance on seller’s judgement?
Ashington Piggeries v
Christopher Hill.

46. Course of seller’s business?
David Jones Ltd v Willis
(1934) 52 CLR 110
Ashington Piggeries v Christopher Hill
Not trade name?
Reliance, not reputation

47. Trade Practices Act s71 Implied undertakings as to quality or fitness
             (2)  Where a corporation supplies … goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the skill or judgment of the corporation or of that person.

48. TPA s71 Similar to s18 Consumer requirement
Purchase by trade name not a bar
E v Australian Red
Cross Society (1992)
Provision of services
– not supply of goods.

49. Merchantable quality Sale of Goods Act s19(2) (2) Where goods are
bought by description from a
seller who deals in goods of that description (whether the seller be the manufacturer or not),
there is an implied condition that
the goods shall be of merchantable quality…

50. Merchantable quality?
S64(3) of the Sale of Goods Act, defines merchantable quality with respect to a consumer sale as follows:
(3) Without limiting the meaning of the expression "merchantable quality", goods of any kind which are the subject of a contract for a consumer sale are not of merchantable quality if they are not as fit for the purpose or purposes for which goods of that kind are commonly bought as is reasonable to expect having regard to their price, to any description applied to them by the seller and to all other circumstances.

51. Trade Practices Act s71 (1) Where a corporation supplies… goods to a
consumer
in the course of a business,
there is an implied condition that
the goods supplied under the contract for the supply of the goods are of merchantable quality,…

52. Merchantable quality? Carpet Call Pty Ltd v Chan (1987) ATPR 41-025
Rasell v. Garden City Vinyl and Carpet Centre Pty Ltd (1991) ATPR

53. Correspondence with sample
SGA s20 Sale by sample
(1) A contract of sale is a contract for sale by sample where there is a term in the contract express or implied to that effect.
(2) In the case of a contract for sale by sample:
(a) there is an implied condition that the bulk shall correspond with the sample in quality,
(b) there is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample,
(c) there is an implied condition that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample.

54. Trade Practices Act s72 Supply by sample
                   Where in a contract for the supply … by a corporation in the course of a business of goods to a consumer there is a term in the contract, expressed or implied, to the effect that the goods are supplied by reference to a sample:
                     (a)  there is an implied condition that the bulk will correspond with the sample in quality;
                     (b)  there is an implied condition that the consumer will have a reasonable opportunity of comparing the bulk with the sample; and
                     (c)  there is an implied condition that the goods will be free from any defect, rendering them unmerchantable, that would not be apparent on reasonable examination of the sample.

55. Rassell v Garden City Vinyl
Ashington Piggeries v Christopher Hill
“…restricted to characteristics of the goods which a reasonable examination of the sample ought to have revealed, that is, characteristics which would be apparent upon physical inspection of the sample and the goods and the application to them of such other tests as are customarily applied in the trade.” Lord Diplock

56. Seller’s duty in relation to the supply of services: TPA s74
             (1)  In every contract for the supply by a corporation in the course of a business of services to a consumer there is an implied warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied.
             (2)  Where a corporation supplies services … to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation any particular purpose for which the services are required or the result that he or she desires the services to achieve, there is an implied warranty that the services supplied under the contract for the supply of the services and any materials supplied in connexion with those services will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the corporation's skill or judgment.
         

57. Services? s4 definition Excludes insurance contracts
transport or storage of commercial goods
professional services provided by architects or engineers (s 74).

58. Consumer? Can include small business
Crawford v Mayne Nickless Ltd (1992) ATPR (Digest)

59. Flooring:
Mavis is a keen cook and has just renovated her kitchen to meet her cooking needs. She was particularly interested in flooring as she had difficulties keeping her slate tiles clean. She searched for low maintenance flooring and after extensive shopping decided on single sheet vinyl flooring. She saw just the thing at Discount Lino Barn, close to Kylie’s home. Kylie indicated that she didn’t share her mother’s preference for vinyl flooring as it was cold underfoot and had suggested kitchen carpet. Kylie and Mavis spoke to Mike at Discount Lino Barn who suggested under-floor heating could address Kylie’s temperature issues. Kylie provided details of the under floor heating options while her mother left the conference room to offer slices of her coffee cake to the other staff….

60. She is also angry about the flooring she has had installed
She is also angry about the flooring she has had installed. Despite Kylie’s protests she went with the single sheet vinyl, and did not have under floor heating installed. After all, Mavis said, the point was to have a floor which was easier to clean, and what would she do with all those dropped eggs if the floor heating was on? She was not interested in kitchen floor scrambled eggs!! The vinyl, while easier to clean than the slate, is marking and scuffing badly however. She has only had it down 6 months, and already there are a number of wear marks. Her cupcake classes – which she runs 5 times a week and more often in school holidays – are now so popular that she has at least 20 students per class. Because of her renovations she has room for them all around her lovely new island bench, but the vinyl around the island bench almost looks like a race track. It is as if her students have worn a path around the bench – and in only 6 months. The vinyl was quite expensive – as she had heavy grade domestic installed – but Mavis is very unhappy. She hasn’t yet paid the bill for the vinyl as she has been arguing with the company. They are, according to Mavis, now getting nasty, and want their $45,000 immediately.

61. Fridge
She also advised that her mother was having problems with Whitegoods World from which she had bought her fridge. Kylie advised that her mother required a “French door” fridge with freezer drawers underneath to accommodate the large baking trays she used for her cakes. She had ordered the fridge she needed from Whitegoods World but had experienced delivery problems.

62. Her oven purchase was much more successful than her fridge which, on the very day it was due to be delivered – not only did not arrive, but the shop called her to advise that delivery was delayed for one month. Mavis said to the shop keeper: “Well that’s no good to me. I ordered that fridge for today. I need that fridge today. I told you when I needed the fridge. The only reason I ordered from you was that you told me I could have it today. If you can’t give it to me today, you can just keep your fridge!! I don’t want it anymore.” Mavis then rang Quick Fridge and ordered and received another fridge that afternoon– suitable for her requirements. However, one month later, Whitegoods World delivered the fridge originally ordered and demanded payment. Mavis told them she no longer wanted the fridge and had cancelled the order. Whitegoods World denied the order was cancelled – as their policy is no cancellations after an order has been placed. They are threatening to sue Mavis for the price of the fridge - $5,500.

63. Oven
Mavis returned to the conference room. She advised that she had had to make a large coffee cake that morning, even though her preference would have been to make cup-cakes. In fact, one of her legal problems was her cup-cake oven. Cake Cookers is a specialist retailer which sells products designed for those who like to cook cakes. It retails a number of specialist pans and other baking utensils – many imported from America and not readily available in Australia, as well as a special range of cake ovens. They are located in Broome – and Mavis lives in NSW, but Cake Cookers sells throughout Australia by catalogue. Mavis wanted a special cake oven in her new kitchen. She saw an oven that looked perfect for her in their catalogue – the picture showed 8 slide out patty pan trays instead of oven trays – exactly what she wanted.

64. She rang the store and spoke to Cathy
She rang the store and spoke to Cathy. She told Cathy all about her cupcakes, her favourite recipes, and her interest in the patty pan oven in their catalogue. Cathy told her that the patty pan oven had eight slide out patty pan holders – instead of oven racks – and that each patty pan holder would take one dozen patty pans. Even better, they came with self cleaning silicone inserts. Mavis was delighted about the self cleaning but concerned that each tray would only take one dozen patty pans. Although after discussion with Cathy, she was convinced that the overall capacity of the oven was appropriate, and so she placed an order….

65. Mavis advised that even if she had known about the cake order she would have had difficulty fulfilling it because of problems with her newly installed cake oven. When the oven arrived she saw that instead of Australian sized delicate patty pan holders, the cake trays were American size muffin holders – and two trays were even jumbo sized Texas muffin size holders. This is not what Mavis wanted at all, although, she thought, it did explain why there were only 12 to a tray.
Mavis rang Cathy and told her the oven was not what she had wanted at all, and not suitable for the cakes in which she specialised. Cathy said she was sorry that Mavis was disappointed, but there is nothing that they can do about it. Mavis wants to know if she still has to pay the $8,000 for the special cake oven.

66. Wedding cake
As well, Mavis is being threatened with legal action by Chrissie Saranrap. Chrissie was married a month ago and was expecting Mavis to provide her specialty – the “nouveau doveau” - a tiered tower of cupcakes, iced in white and arranged to resemble the wings of doves – as the centrepiece cake for her wedding reception. Mavis loves doing cakes for weddings – in fact she now makes more money from doing wedding cakes than she does from her regular cooking classes, although she does find a number of her brides returning for cooking classes. She has even noticed a trend where the grooms’ mothers often present their new daughters-in-law with gift vouchers for her cooking classes.
Chrissie saw information about Mavis’ cake services after an article in the local paper, and called round to see Mavis, and look at the different cakes she could make. They discussed possibilities and pricing and Chrissie left with a price list. Apparently, Chrissie called and left Mavis a message on the answering machine ordering the “nouveau doveau” for her wedding, to be delivered on 2nd May at the wedding reception, for $2,000 COD. In her message, Chrissie had said: “If I don’t hear to the contrary, I’ll assume everything is OK. Call me if there is a problem – otherwise I will see you on the 2nd. Looking forward to your lovely creation.”

67. Unfortunately, because of all the work being done to the kitchen and problems with electrical work and electrical supply, Mavis had experienced a number of black outs which had interrupted her answering machine. Mavis – never received the message from Chrissie, and so of course, had not provided the cake. Chrissie is very angry and claims her wedding was ruined. Apparently she had patterned all her stationery around the dove theme, and her flower girl walked in wearing tulle dove wings, and scattering white feathers instead of rose petals. The nouveau doveau was meant to be the unifying theme which would tie Chrissie’s wedding together, but had not been delivered. She has threatened to sue Mavis.