Contracts Law Mid-Term Assignment - Awarded Credit

Suzanne Stone Contract Law – Assignment 1 S294199

Assignment Question

Fred from Rapid Creek, flushed with the success of the sale of his Armani jacket decides to become a clothing magnate. He goes to the Humpty Doo Fair and meets Garry from Gundagai who offers

verbally to sell him 500 genuine Armani coats made in Italy for $10,000. Garry wants cash or the

equivalent.

Fred does not have $10,000 but he sees an old acquaintance, Pete from Palmerston. Fred offers to

sell his Kia car [worth about $18,000] to Pete for $10,000. Pete says he will buy the car but wants

to pay in gold bullion. Fred agrees and accepts a gold bar from Pete in full payment for the car.

Subsequently, Fred offers Garry the gold bar given to him by Pete as full payment for the coats.

Garry weighs the bar and accepts the deal. Garry is a wheeler and dealer who believes he knows the value of gold.

Fred sets up a stall on Bagot Road and advertises as follows ‘GENUINE FAMOUS NAME

JACKETS FOR LESS THAN COST’. Tommy, a tailor from Toowoomba, is passing by. He stops his car and carefully examines the fabric. It feels like good wool.

Tommy buys the whole stock from Fred for $25,000. He pays him a deposit of $1,000 cash and

leaves his $10,000 Omega Watch as security. Tommy takes the coats back to his shop and has second thoughts. The only contact details he has for Fred is the phone number on the otherwise

illegible receipt Fred gave him. He dials the number and gets a recorded message: ‘You have rung

the third bar stool on the left at the Rapid Creek Pub. The occupant is not presently sitting on it,

but never fear Fred is near’. Tommy leaves a message for Fred. He says ‘The deal is off, you can

have the grand, but I want my watch back’. He receives no reply.

Tommy waits for 2 days and decides to try to sell the garments. He advertises them as

‘FAMOUS NAME ITALIAN JACKETS AT HALF PRICE’. He offers them at $500 each. His

first sale is a debacle. The buyer shows Tommy the label ‘GEORGY ARMANNI – MADE IN ITALLY – Venezuala’ reads the small square of cloth on the rear lining.

Tommy wants his money back and/or wants to sue Fred. Fred wants his car back from Pete.

Garry is threatening to kill Pete as the gold bar turns out to be painted iron. Garry also wants to

sue Pete and Fred. Finally, Pete wants to know if he can keep the car.

Advise the parties.


Assignment Response:

Utilising the objective theory of contract as per Toll,1 and within the confines of the curriculum for this assignment, these problems are to be solved based on what the individual parties have said

and done, rather than what the parties were thinking to determine if the contract exists; as well as

assessing each party’s legal obligations in terms of whether there were any intentions to legally

enforce this contract.2

1. GARRY v FRED

Does Garry have cause of action for damages for breach of contract against Fred depending on

whether their agreement is an enforceable contract based on (1) counter-offer or acceptance; (2)

certainty; and (3) consideration? Or is the contract void due to misrepresentation?

COUNTER-OFFER OR ACCEPTANCE?

Was Fred’s offer to pay Garry one gold bar instead of $10,000 a counter-offer or an acceptance to

Garry’s original offer? Garry offered to sell Fred the coats for $10,000 or “the equivalent”. It would be argued that had not Garry stated “the equivalent”, Fred’s payment of the gold bar could be

deemed as a counter-offer as it did not fit within the exact terms of Garry’s offer.3 However, Garry

communicated acceptance to Fred’s offer to buy the coats with the “equivalent” of one gold bar

which would be argued that the acceptance is valid. With Garry using the word “equivalent”4

would mean that he believed that this form of payment of one gold bar equaled in value to $10,000 in cash. Like in Lark, this would not invalidate Fred’s communication of acceptance because the

description of payment does not exactly match the offer, but “would otherwise be implied.”5

COMPLETENESS As per the meaning from Thorby,6 it would appear that all the essential terms were present in this

contractual matter between Garry and Fred.

CERTAINTY Essential terms must exist and be sufficiently certain in terms of the language not being “obscure”

or without “precise meaning” otherwise the contract would be void.7 Regarding construction of

terms, Garry may have an argument that the description of Fred’s promise of consideration being

a “gold bar” was too vague when a reasonable person would have expected, like Garry had, the

gold bar to be a solid bar of gold close to the value of the coats offered for sale, and not an iron bar covered in gold coloured paint.

However, Fred could have a defence as per Upper Hunter Valley DC in that if a term has more

than one meaning,8 or as per McDermott the term is ambiguous,9 it does not automatically mean that the contract is void for uncertainty.

1 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, at 179. 2 John Gooley, Peter Radan and Ilija Vickovich, Principles of Contract Law (LexisNexis, 3rd ed, 2014) 2. 3 Stevenson Jacques and Co v McLean (1880) 5 QBD 346. 4 Angus Stevenson (Ed), 'Oxford Dictionary of English' (2010)

<//www.oxfordreference.com/10.1093/acref/9780199571123.001.0001/acref-9780199571123>; Thomas v Thomas

(1842) 114 ER 330; ibid.; ibid.; ibid.; Director of Prosecutions of Victoria v Le (2007) 232 CLR 562; Thomas v

Thomas (1842) 114 ER 330; ibid. Equivalent defined in the Oxford Dictionary as “A person or thing that is equal to

or corresponds with another in value, amount, function, meaning, etc.” 5 Lark v Outhwaite [1991] Lloyd's Rep 132, at 139 per Hirst J; Gooley, Radan and Vickovich, above n 2, 63 [4.80]. 6 Thorby v Goldberg (1964) 112 CLR 597, Menzies J quoting Sugerman J at 607. 7 Scammel & Nephew Ltd v Ouston [1941] AC 251, as per Lord Wright at 268. 8 Upper Hunter Valley DC v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429, Barwick CJ at 436. 9 McDermott v Black (1940) 63 CLR 161, as per Starke J at 175.


CONSIDERATION

For a contract to be binding, consideration of value must be exchanged between parties in the form of an act or a promise. 10 In this matter, a bilateral contract was established by both parties

providing to each other for consideration, what they believed to be, goods of equal value in

exchange.

Based on the evidence given, after the execution of the contract (exchange of consideration), Fred

realised that the coats he bought from Garry were not from the presumed Italian fashion designer

Giorgio Armani as expected; and, Garry discovered that the gold bar he received in payment was

not solid gold as expected. Available evidence suggests that by their actions and recollection of

conversations, neither party intended to misrepresent the true nature of their contribution, and it also seems that neither party knew at the time of exchange that their respective consideration

promised to each other did not have legitimate representative value.

Arguably neither made a gain or a loss against each other in terms of the value of their exchanged contribution. In fact, the value exchanged between Fred and Garry arguably resulted in a zero sum

gain. Neither party received the goods that were promised to each other; and neither party knew at

the time of the transaction that either goods were not legitimate. However, Islington states that it

is not for the Courts to determine the value of contracts and will rather uphold an agreement rather than render it void due to incompleteness or uncertainty.11

CONCLUSION In conclusion, it would be advised that Garry:

1. May have an argument of uncertainty to the terms of the contract, in that the description of a gold bar was too vague to the point that what Garry had expected to receive was not

what Fred had provided rendering the contract void. To note, Fred would very likely counter-sue on the same grounds, which in doing so, the court would hold the contract

void.

2. May have cause to charge action against Fred for breach of contract due to failing to provide sufficient consideration – that being a solid gold bar. However, Fred would also

likely take the same action against Garry for the same cause of failing to provide promised

consideration – that being 500 “genuine Armani” coats. Although Garry could have a

defence in that they are “genuine Armanni” coats, the consideration in Fred’s (and an objective reasonable person’s) mind, was that the coats he was buying were Giorgio

Armani label coats.

3. May have a voidable contract through mistake whereby the validity of the contract is called into question because of the defect of consideration exchanged between both parties.

Whether it was a mistake or misrepresentation, as per Islington London Borough

Council,12 it may be argued that the contract becomes rescinded as void, and the contract should be treated as though it never had affect.

Ultimately, because Garry also provided dubious consideration, it would be advised that he not

charge action against Fred as he would counter-sue on each same point resulting in zero sum gain. Alternatively, taking action would very likely sever the contract and hold the contract to be void.

10 Attorney-General for England v R [2002] 2 NZLR 91, at 106; Thomas v Thomas (1842) 114 ER 330, at 333. 11 Brown v Gould [1972] Ch 53, 57-8. 12 Islington London Borough Council v Uckac [2006] 1 WLR 1303, at 1311.


2. GARRY v PETE

Does Garry have cause of action for damages for breach of contract against Pete as a third party between Fred and Pete’s contract based on privity of contract?

PRIVITY OF CONTRACT - THIRD PARTY

Beyond taking tortious malfeasance action, cases Coulls13 and Dunlop14 demonstrate that Garry

does not have standing to sue Pete for breach of contract, as he was not a party to a contract with him. Notwithstanding that Garry had not provided any consideration, this contractual arrangement

was between Pete and Fred alone. Even though Fred sold his car to Pete in order to raise funds to

pay for the coats from Garry, it is distinguished to Trident General Insurance Co, in that the

contract between Pete and Fred was not linked or conditional in any way to the contract between Fred and Garry. In other words, although Garry may have been burdened by the performance of

Pete and Fred’s contract, he does not have privity to that contract and ipso facto no right to sue

Pete.15

CONCLUSION It is advised that Garry does not have any cause to charge action against Fred for breach of contract

as Garry does not have any privity of contract with Pete.

3. FRED v PETE

Does Fred have cause of action against Pete for damages regarding (1) Acceptance or Counter-

Offer; (2) Uncertainty; or (3) consideration?

ACCEPTANCE OR COUNTER-OFFER

Fred offered to sell his car for $10,000 cash only. Similarly to Hyde,16 Pete rejected the terms of

the offer to pay $10,000 in cash, but counter-offered to buy the car and pay in gold bullion, putting

an end to Fred’s offer. But unlike in Hyde, Pete’s new offer continued to exist when he went to

buy Fred’s car with one gold bar which Fred subsequently accepted the terms of that offer.

UNCERTAINTY

There are several questions that the available evidence cannot answer which would have bearing on how to advise Fred. Did Pete have intentions to create a legal relation with Fred when he offered

to buy Fred’s car with a gold bar? Was it Pete’s intention to buy Fred’s car with an iron bar that

was covered with gold coloured paint, and if so, was this communicated and understood by Fred?

Did Fred understand and accept that he was not receiving a solid gold bar for payment of his car, which did not have the value of $10,000, for which he originally asked?

In McDermott, the principle of uncertainty does not automatically mean ambiguous meaning.17

However, like that of a reasonable person, Fred would have expected the bar to have been made

of solid gold as such an item would be close to the value of his car, whereas an iron bar would not. As per the meaning of uncertainty already described in the case between Garry v Fred, the

13 Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460, at 478. 14 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC 847, at 853 as per Viscount Haldane LC. 15 Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107, 115-6 as Mason CJ and Wilson

J. 16 Hyde v Wrench (1840) 49 ER 132, at [336]. 17 McDermott v Black (1940) 63 CLR 161, at 175.


aforementioned questions demonstrate significant uncertainty to the terms of the contract executed

between Fred and Pete, and likely to have grounds to have the contract void.

SUFFICIENT CONSIDERATION Based on the concept of reciprocity, the promisee (person to whom the promise is made) gives

something of value for that promise.18 DPP (Vic)19 also noted that sufficient consideration usually has a notion of a tangible benefit or advantage conferred by the promisor (such as Pete) upon the

promisee (such as Fred), so that there may be forbearance to sue, or show a bona fide compromise

to the disputed claim, and therefore requiring some legal threshold. But there is no requirement to

have parity in terms of value between the parties’ respective promises, in which Hawker Pacific

Pty Ltd20 considered a single peppercorn may constitute consideration for a single contract. However, Kirby J in Woolworths established that

“…it would be impossible for the law to indulge in an evaluation of the equivalence of the

promises made by parties to a contract. To do so would open the flood gates, made worse by

judges reaching different conclusions on the same fact. Therefore, there are other avenues to

challenge the adequacy of a bargain where some wrong or moral fault can be shown – but not

in contract.”21

It was not discovered until after the execution of the contract that the consideration provided by

Pete to Fred was not as promised. Therefore, as per Islington, the quality of the consent given by

Fred to accept Pete’s counter-offer of the gold bar could be called into question due to Pete’s

misrepresentation or even unconscionability, and would have reason to rescind or put aside the

contract; or alternatively sue for breach of contract due to insufficient consideration.

CONCLUSION

In conclusion, it would be advised that Fred:

1. May have an argument for uncertainty regarding the terms of the contract, in that the description of a gold bar was too vague to the point that what Fred had expected to receive

was not what Pete had provided, possibly rendering the contract void.

2. May have cause to charge action against Pete for breach of contract due to failing to provide sufficient consideration, in that what was promised was not was expected to be received -

a solid gold bar.

3. May have a voidable contract through misrepresentation whereby the validity of the contract is called into question because of the defect of consideration provided by Pete to

Fred. As per Islington London Borough Council,22 it may be argued that the contract should

be rescinded as void, and the contract treated as though it never had affect.

4. PETE

Pete wants to know if he can keep the car.

Advice would depend on the outcomes of all other matters in terms of who may bring action upon

whom, and its accompanying results. However, ultimately it depends if Fred brings action against

18 Thomas v Thomas (1842) 114 ER 330, at 333. 19 Director of Prosecutions of Victoria v Le (2007) 232 CLR 562, at 576-7 [43]. 20 Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298, at 307. 21 Woolworths Ltd v Kelly (1992) 22 NSWLR 189, at 193-4 as per Kirby J. 22 Islington London Borough Council v Uckac [2006] 1 WLR 1303, at 1311.


Pete. If successful, it would then depend on the damages brought against Pete, so that he may have

to return the car.

5. TOMMY V FRED

Providing advice in this matter is difficult. Evidence given does not indicate:

1. Who offered whom what; 2. What the terms were regarding the security and deposit;

3. What the arrangements were regarding how, where, and when full payment would be made;

OFFER AND ACCEPTANCE It is not known who made an offer to whom, and on what terms other than the final outcome

described in evidence. But the evidence does indicate that a bargain has been struck since Fred has

allowed Tommy to take the coats away in exchange for the cash deposit and watch as security.

There is no information as to whether Fred gave Tommy any warranty to allow him to change his mind at a later date, so the fact that Tommy attempted to reach Fred to change his mind may not

be relevant. Even if there had been a warranty, Tommy seems to have accepted the contract by his

actions in advertising and his attempts to sell the coats.

CERTAINTY Tommy would be in the same situation as Garry and Fred before him with respect to whether all

the essential terms exist and the language precise enough to not be obscure, if so the contract could

be made void. 23 Tommy may have sufficient cause to take action in that Fred’s advertisement was

if not misleading at worse, it was ambiguous as best. However, evidence indicates that Tommy had more likely offered to buy the coats for their quality of woolen material more so than for what

the advertisement described.

CONSIDERATION Tommy wants his money back or sue Fred. Fred has fulfilled his end of the bargain by handing

over all the coats to Tommy and it is Tommy who has not fulfilled his promise, with only having

paid a deposit and a watch as security.24 For a contract to be binding, consideration of value must

be exchanged between parties in the form of an act or a promise. In this matter, a bilateral contract

was established when both parties provided each other consideration by way of Fred promising Tommy 500 coats and Tommy promising Fred $25,000 for the whole stock. Even though Tommy

has not paid the whole amount, the contract has been executed by the exchange of promises, which

now allows the law to take remedy if the promises have not been fulfilled.25

Arguably, it is Fred whom has made a loss against Tommy hitherto in terms of value of their

exchange of contribution. Therefore, it is Fred who may have standing to take charges against

Tommy considering Tommy is yet to provide full contribution.

CONCLUSION In conclusion, there is significant and vital evidence missing to provide more definitive advice

other than the following. Tommy:

23 Scammel & Nephew Ltd v Ouston [1941] AC 251, as per Lord Wright at 268. 24 Attorney-General for England v R [2002] 2 NZLR 91, at 106; Thomas v Thomas (1842) 114 ER 330, at 333. 25 Union Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 All ER 104, as per Lord Diplock

at 108.


1. May, at best, be able to negotiate directly with Fred to get his money and watch back, but

it would be assumed only if he returned the coats.

2. Like Pete and Garry, Tommy may be able to take action against Fred for breach of contract

due to insufficient consideration; or have the contract made void due to uncertainty of the terms of the contract.

3. However, appears to not have honoured his own promise to Fred. Therefore, he may not only not get his watch and deposit back, but he may also face actions against him from

Fred to claim remedies for breach of contract for failing to fulfill consideration.

Words: 2,491 (Does not include footnotes, bibliography (automatically created by Endnote), and Diagrams.


BIBLIOGRAPHY

A. Articles/Books/Reports

Gooley, John, Peter Radan and Ilija Vickovich, Principles of Contract Law (LexisNexis, 3rd ed,

2014)

Stevenson (Ed), Angus, 'Oxford Dictionary of English' (2010)

<//www.oxfordreference.com/10.1093/acref/9780199571123.001.0001/acref-9780199571123>

B. Cases

Attorney-General for England v R [2002] 2 NZLR 91

Brown v Gould [1972] Ch 53

Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460

Director of Prosecutions of Victoria v Le (2007) 232 CLR 562

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC 847

Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298

Hyde v Wrench (1840) 49 ER 132

Islington London Borough Council v Uckac [2006] 1 WLR 1303

Lark v Outhwaite [1991] Lloyd's Rep 132

McDermott v Black (1940) 63 CLR 161

Scammel & Nephew Ltd v Ouston [1941] AC 251

Stevenson Jacques and Co v McLean (1880) 5 QBD 346

Thomas v Thomas (1842) 114 ER 330

Thorby v Goldberg (1964) 112 CLR 597

http://www.oxfordreference.com/10.1093/acref/9780199571123.001.0001/acref-9780199571123


Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107

Union Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 All ER 104

Upper Hunter Valley DC v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429

Woolworths Ltd v Kelly (1992) 22 NSWLR 189


Appendix A – 1st set of contractual transactions flowchart

1. Garry offers to sell 500 coats

to Fred for $10k and wants it

paid in cash or equivalent

FRED

5. Fred accepts Garry’s coat

offer with a gold bar as

equivalent to $10k.

GARRY PETE

2. Not having enough money,

Fred offers to sell his car to

Pete for $10k

FRED TOMMY

3. Pete rejects Fred’s offer of

$10k, and counter offer’s

Fred to buy the car with 1

gold bar

4. Fred accepts Pete’s offer to

pay in gold bullion

1. Tommy offers to buy Fred’s

500 coats for $25k??? He

leaves his $10k watch as

security and $1k deposit

2. Fred accepts Tommy’s offer

and gives him the coats???? 3. Tommy changes his mind. He wants to

return the coats and asks for his watch

back via voice message bank on Fred’s

phone. Fred hasn’t responded. Tommy

attempts to sell the coats at $500 each &

discovers they are not the Armani label

expected.

Suzanne Stone Contract Law – Assignment 1 S294199 Appendix B – Set of contract suit flowchart

1. Tommy advertises

suits at $500 each

2. Tommy finds out from

customer that the suits

are fake

TOMMY FRED

3. Tommy wants his money

back or sue Fred

4. Fred wants his car

back from Pete

TOMMY

ADVERTISES

$500 EA PETE

6. Pete wants to

know if he can keep

his car.

GARRY

5. Garry’s threatening to kill Pete coz

he’s discovered that bullion is really

gold painted iron and now wants to

sue him.

7. Garry also

wants to sue

Fred.

Documents

Contracts Law Mid-Term Assignment - Awarded Credit