Contract Formation

This article discusses the rules of contract formation and their application in different scenarios. It covers the importance of reading terms, completeness of contracts, enforceability of pre-contractual statements, and implied terms. The article cites relevant case laws and provides expert guidance on contract formation.

Running Head: Contract Formation 1
Contract Formation
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Contract Formation 2
Question 1
Issue
Is the fact that Weitao did not read the term render the term inapplicable?
Rule
A person is bound by a term in a written contract provided the term was provided in
the contract irrespective of whether the person read the contract or not when he signed the
contract, L’Estrange v Gaucob1. The common law principle in L’Estrange is applicable in
Australia and was applied in determination of Peekay Intermark ltd and another v Australia
and New Zealand Banking Group Ltd2 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd3. In
Toll (FGCT) Pty Ltd the contract directed an agent to read the term of the contract overleaf.
However, he ignored and just signed the contract. The contract and the terms were found to
be binding irrespective of whether the terms were read on not. The only circumstance a
person can escape the application of a signed contract is where there are vitiating factors such
fraud and misrepresentation4.
It is not a requirement that the terms of a written contract must be brought to the
attention of the signing party in order to be binding5. However, where the terms of a written
contract are provided in some other place or document other than the one being signed, the
party’s attention must be adequately brought to the existence of such terms. Otherwise they
will be held not to be apply.
Application
1 [1934] 2 KB 394
2 [2006] EWCA Civ 386
3 [2004] HCA 52
4 Paul S. Davies, JC Smith’s the Law of Contract (Oxford University Press, 2018) 18.
5Paul Latimer, Australian Business Law (CCH Australia Limited, 2011) 440.

Contract Formation 3
Waitao signed the contract without reading the note. The fact that he signed the
contract but failed to read the note in the contract is immaterial based on the holding in
L’Estrange and Toll (FGCT) Pty Ltd. The signature was an assent to be bound. There is no
fraud or claim of misrepresentation that is likely to vitiate the contract.
Conclusion
The fact that Waitao did not read the note is immaterial. Waitao is, therefore, bound
by the term on the note.
Question 2
Issue
Is the contract between Warren and Evelyn complete and capable of being enforced?
Rule
The essentials of an enforceable contract include, among others, its completeness6. A
party cannot enforce an incomplete contract. However, this will depend on whether the term
which has not been agreed on is essential to the contract or not. In Harvey v Pratt7 a lease
contract was held to be unenforceable due to incompleteness. The lease did not provide the
commencement date. In Anaconda Nickel v Tarmoola Australia Pty Ltd8it was stated that the
parties’ intention determine whether a particular term is essential or not. In Harvey parties
agreed on everything including the price to be paid, however, commencement was not
provided. The court found the commencement time to be essential. In this case scenario the
6 Paul Latimer, Australian Business Law 2012 (CCH Australia Limited, 2011) 437
7 [1965] 1 WLR 1025
8 [2000] WASCA 27

Contract Formation 4
day when the painting is to be done is essential to the contract because it determines the
parties’ rights under the contract for breach.
Application
Warren and Evelyn entered into a contract and agreed on other terms such as how
long the painting will take. However, they did not agree on when the painting was to be done
and they have not been able to agree on that for quite some time. Despite Warren’s attempts
to have the time set or agreed on Evelyn has been non-committal. Time of painting is
essential to the performance of the contract and for determination of parties’ liabilities. Based
on the holdings in Harvey and Anaconda Nickel the contract is incomplete and therefore
unenforceable.
Conclusion
Warren is wrong as the contract is incomplete and unenforceable. There are no
benefits under the contract, under the circumstances.
Question 3
Issue
Are Evelyn’s words terms of the contract enforceable against her?
Rule
The determination whether a statement made before formation of a contract is a term
depends on the importance of the representation to the parties9 and the knowledge and skill
between the parties10. The determination whether a pre-contract representation was a term of
9 James Dvenney, Cases and Materials on Contract Law (Taylor & Francis, 2018, 4th edition) 191
10 Richard Stone, Modern Law of Contract (Psychology Press, 2005) 192

Contract Formation 5
the contract was made Bannerman v White11where a buyer of hops relied on the assurance of
the seller that the hops were not treated with sulphur but some were indeed treated with
sulphur. The statement was determined to be a term of the contract due to its importance to
the buyer. It was the court’s determination that the parties would have entered into the
contract if there was no assurance that the hops are not treated with sulphur. The assurance
was therefore important.
Where the a person has got more knowledge than a third party and the third party can
be reasonably said to have relied on that person’s skill and knowledge the assurance of such a
person is a term as was held in Dick Bentley Productions Ltd v Harold Smith12 and Oscar
Chess Ltd v Williams13. A car dealer was held to have more knowledge and skill than the
buyer that the statement he made before the formation of the contract was held to be a term.
Application
Ambreena needed a tablet to complete a project while travelling. The storage space
was therefore important and as such assurance that the tablet has a particular memory space is
a term. This is in accordance with Bannerman case where importance of a representation
made it a term of a contract. Also, Evelyn deals in tablets and is therefore has more skills and
knowledge than Ambreena in matters pertaining to tablets and as such the assurance that the
particular tablet was perfect for Ambreena’s use and had particular memory space was a term
of the contract based on the court’s holding in Dick Bentley Productions Ltd and Oscar Chess
Ltd. In those cases a term was determined that where a party relies on the skills and
knowledge of another that person’s assurance is a term of contract. It can reasonable be said
that Ambreena relied on Evelyn’s assurance to enter the contract.
11 (1861) 10 CB(NS) 844
12 [1965] 2 All ER 65
13 [1957] 1 All ER 325

Contract Formation 6
Conclusion
Evelyn’s representation to the effect that the tablet has more space was a term of the
contract.
Question 4
Issue
Is provision of the laptop charger an implied term in the contract between Evelyn and
Jake?
Rule
The court in Codelfa Construction Pty Ltd v State Rail Authority of NSW14established
five considerations for a term to be implied into a contract. These include the term not being
inconsistent with already existing terms of the contract, the term being necessary, the term
being obvious, the term being fair and the term having capability of being expressed in the
contract. Adelaide City Corporation v Jennings Industries Ltd15 provided circumstances under
which a term to be implied may be considered to be inconsistent with other express terms.
This include where the implied terms intends to deal a term already provide in the contract
between the parties. Con-Stan Industries of Australia v Norwich Winterthur Insurance
(Australia) Ltd16 on the other hand discussed when a term may be considered to be necessary.
It was stated that a term is necessary if it is important for the performance of the contract and
it is obvious17.
Application
14 [1982] HCA 24
15 (1985) 156 CLR 274
16 (1986) 160 CLR 226
17 Peter Gillies, Concise Contract Law (Federation Press, 1988) 85

Contract Formation 7
In Codelfa Construction Pty Ltd it was stated that the parties must have contemplated
the term. Jake hired a laptop but later realised that the charger was not included. The term
that the charger should be included is necessary for the performance of the contract and it is
obvious. The laptop was hired for use and at some time was going to be necessary to charge
it. This is obvious and necessary since it will defeat the purpose for which the laptop was
hired and it can, therefore, be implied based on Con-Stan Industries of Australia. The term
also does not contradict any express term of the contract between the parties.
The term does not tend to deal with any matter the parties have expressly dealt with
under the contract. This also affirms that the term can be implied into the contract based on
Adelaide City Corporation. The term can also be expressed into a contract. Based on the
holding in Codelfa Construction Pty Ltd the parties contemplated the term. Even in the
purchase of laptops, laptop charger are always provided and so it was parties’ contemplation
that the charger would be provided.
Conclusion
The provision of the charger is an implied term of the contract between Jake and
Evelyn.