Business and Company Law
GA506/MA506
Answers To Tutorial Three
Unit Coordinator: Dr. Tushar Das
Chapter 2 – Introduction to the Law of Contract
Answers to Tutorial Questions
2.7 [Bilateral and unilateral contracts]
Contracts are either bilateral or unilateral, depending upon what the offeree must do to accept the offeror’s offer. The contract is bilateral if the offeror’s promise is answered with the offeree’s promise of acceptance. It consists of an exchange of mutual promises, ie a “promise for a promise” with performance to occur at some future date. No act of performance is necessary to create a bilateral contract.
A unilateral contract is one in which the offeror’s offer can be accepted only by the performance of an act by the offeree: a promise for an act, eg in reward cases where the offeror promises to pay a person a reward if they find what the offeror has lost.
The language of the offeror’s promise has to be examined carefully to determine whether it is an offer to create a bilateral or unilateral contract and if there is any ambiguity, it will be presumed to be bilateral.
2.8 [Enforceability of contract]
The wording has to be taken into account here. The question is asking about enforceability, not validity. So the courts will consider capacity, consent, form and legality.
2.9 [Deed – requirements]
A deed is a written document which creates an obligation between parties and it obtains its effectiveness from its form, ie it is “signed, sealed and delivered”. It doesn’t require consideration because of the way in which it is drawn up. In a simple contract, the need for consideration is to emphasise the essentially commercial nature of the simple contract and provides the evidence of a bargain.
Answers to Problem Questions
2.10 [Offers to world at large]
The advertisement in the newspaper is an offer to the world at large. It is an offer to become liable to anyone performing the condition who, at the time of performance, is doing so in awareness of, and reliance on, the offer. In R v Clarke (1927) (see Ch 3), while Clarke had seen the offer, in giving the information he had not done so in reliance of the offer. In this case, the advertisement states that the reward will be payable to anyone who either returns the dog or provides information in relation to its whereabouts that leadsto its return. Sophia has both seen the notice and then provided the information that led to the return of the dog so she should be able to claim the reward. The reason for the qualification, ie the use of the word “should”, is that the facts are not clear that she was providing the information on the basis that she could claim the reward if it proved correct.
This will be an example of a unilateral contract as it appears that there has been a promise being accepted by the performance of an act
2.11 [Reviewing a contract]
You are encouraged to obtain a copy of a standard loan agreement from a bank or credit union, and to distribute it to your students as the basis for these tutorial questions. Giving students the chance to read a contract at this early stage will provide a useful practical reference for their later studies. Following are some general answers for the guidance of tutors.
- Who are the parties to the contract?
The parties to the contract are generally specified in the schedule to the loan agreement. Schedules are common in most commercial contracts as they enable use of a standard contract for a particular type of transaction, by allowing the relevant details of the parties – which change from transaction to transaction – to be inserted before text of the agreement.
- Who made the offer?
The lender makes the offer to enter a loan contract. The loan contract comprises the offer lender’s offer, which the borrower accepts by signing.
- Who accepted the offer? How?
As stated above, the lender’s offer is accepted by the signature of the borrower. (Generally, the contract will state that the lender’s offer can only be accepted by signature.)
- Did the parties have an intention to contract? How do you know this?
In a commercial context, there is a legal presumption that the parties intended to be bound by their actions (this is studied in Chapter 4). We can therefore assume that there was the requisite contractual intention.
- What is the consideration for the promises made?
Consideration is studied in Chapter 5. The consideration provided by the lender to the borrower is the promise to lend the principal sum. The consideration provided by the borrower to the lender is the promise to repay the principal sum with interest.
- Is there a valid contract between the lender and borrower?
Yes. As stated above, the three essential elements of a prima facie valid contract are present – agreement, intention to contract and consideration.
- What are the terms of the contract?
The terms of the loan contract are the terms of the offer document (which the borrower has signed). These are referred to as the “express terms” of the contract. In most loan contracts they will be found under the heading “terms and conditions of this agreement”.
- Do you think that there might be additional terms not written in the agreement? What are such terms called?
There may be additional unwritten terms in the contract, which are implied by the courts or pursuant to legislation. Generally, consumer protection legislation will confer additional rights on the borrower. These are referred to as “implied terms”. Implied terms are studied in Chapter 9.
- What are the monthly/fortnightly instalments payable under the contract? When are they due?
This can be found in the schedule to the loan agreement. You may need to refer also to the “definitions and interpretation” clause.
- What are the consequences of the borrower failing to make a payment on time? Can the lender sue for breach of contract?
If the borrower fails to make a payment on time, he or she will be in breach of contract. The lender may therefore sue the borrower for damages for breach of contract but in practice, this does not happen.
What happens instead is that there will be a clause in the agreement relating to repayments. This clause will specify the consequences if those repayments are not made. Generally, the contract will provide that the lender may issue the borrower with a notice to pay and, if the borrower does not comply with the notice, the lender may terminate the contract.
There may also be a clause that provides for payment of default interest in the event of late repayments.
- In what circumstances can the borrower terminate the agreement?
There will usually be a term of the contract which provides that the borrower may pay the loan out early if he or she desires.
There may also be a clause that requires the payment of an early repayment fee in such a case.
- In what circumstances can the lender terminate the agreement?
See above.
- What if the borrower was, unknown to the lender, under 18 years at the time of borrowing (and therefore lacking contractual capacity)?
If the borrower was under 18 years at the time of signing the loan contract the agreement may be rendered either void or voidable for lack of capacity. This is studied in detail in Chapter 6.
- How might the borrower argue that he or she is not bound by the agreement?
The borrower would need to argue that the contract was rendered either unenforceable, void or voidable by operation of one of the following doctrines: non-compliance with formalities, lack of capacity, lack of genuine consent or illegality of objects. At this point it might be worthwhile foreshadowing cases such as Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, which will be studied in Chapter 7.
- The laws of which Australian state or territory govern the contract?
Most contracts will contain a “choice of law” clause that states what law is to govern the interpretation of the agreement. The courts generally give effect to such clauses. In the event that there is no “choice” of law clause, the law of the place where the offer was accepted is usually the governing law.
