Contract Law: Essential Elements and Exceptions

This article discusses the essential elements of contract law, including offer, acceptance, consideration, and intention of parties to be legally bounding. It also explores the exceptions related to consideration, such as past consideration, performance of existing duty, and part payment of debt. Additionally, it examines the Australian consumer law and the rights of consumers against misrepresentation and breach of consumer warranty.

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Contract Law

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Answer 1- part A
Issue:
Whether there is any binding contract between the Magda and Avinash in context of
conversation held between them?
Law:
Agreement is considered as the most necessary component for establishing contractual
relationship between two parties, which normally includes offer and acceptance of a contract. It
also involves consideration and partie’s intention to enter into a contract. Therefore, it can be
said the most important elements for existence of contract are offer, acceptance, consideration,
and intention of parties to be legally bounding. This can be understood through case law Carlill v
Carbolic Smoke Ball Co, Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1. Court define
that valid contract exist, as all the essential components related to the contract were present. In
this case, Court mainly focuses on the offer and acceptance of the contract.
It must be noted that, in case, offer is rejected by the offeree then after that it cannot be accepted.
Rejection can be done in two forms either by direct refusal of the contract or by making counter
offer related to the contract, which means giving acceptance but on different terms of the
contract. Even though different terms related to the contract are immaterial in nature then also
counter offer will be treated as rejection of the old offer or new offer. However, it is necessary to
differentiate the counter offer from the mere request of the information, and for being effected it
is necessary that rejection must be communicated and postal rules do not apply on the letters of
rejection.
Application:
In the present case, original offer is made by the Magda to the Avinash includes selling of
framed print of Olympian champion, Paris Stilton, for $1,800 cash. Magda open this offer until
11.59 pm on Tuesday 21 February. Later, this original offer was rejected by the Avinash by
making counter offer in context of the same painting, and it is considered as the counter offer
because Avinash change the terms stated in the original offer (certificate of authenticity that
verified the portrait’s origin and status as a limited edition work). In case law Hyde v Wrench,

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(1840) Beav 334. In this case, court held that if any change was occurred in the terms of the
contract then it will be considered as the rejection of the original offer. Court further stated that,
there was no binding contract between the parties because P automatically rejects the original
offer by making counting offer.
As stated above, Rejection of the can be done in two forms either by direct refusal of the contract
or by making counter offer related to the contract, which means giving acceptance but on
different terms of the contract. In the present case, Avinash reject the original offer and make
new offer to the Magda which was accepted by the Magda but with the condition that this new
offer is open until 4 PM of 20th. However, time limit is considered as the request of information
which is associated with the counter offer made by Avinash and this request is not fulfilled
within reasonable time period because Avinash fails to provide confirmation till 4 PM.
Therefore, it can be said no valid acceptance is present in the contract.
As stated, it can be said the most important elements for existence of contract are offer,
acceptance, consideration, and intention of parties to be legally bounding. In the present case,
valid acceptance is not present which means all essential elements are not present.
Conclusion:
There is no binding contract exist between the Magda and Avinash.
Answer 1 Part B
Issue:
Whether Alton possessed any consumer rights under the Australian consumer law against the
Magda?
Law:
Section 3 of the competition and Consumer Act 2010- Schedule 2 stated that any person acquired
goods in context of consumer if the amount paid for goods does not exceed $40000, and goods
are acquired for personal, domestic or household use.

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Section 56 of the Act contains the provisions related to supply of goods by description. As per
this section, if any person supplies any goods in context of trade or commerce and by description
to the consumer then such goods must be accompanied with the guarantee that the stated goods
are complied with the description stated by seller. It is considered as the implied consumer
warranty which protects the rights of the consumers in case goods are not supplied in complied
with the description given by seller. This can be understood through case law Medtel Pty Ltd v
Courtney (2003) 130 FCR 182 at [64] and [70]. In this case, court upheld the consumer
guarantee and state that goods must be match with the description stated by seller in context of
the goods.
Misrepresentation is considered as providing false information or statement by the one party of
the contract to the other party before entering into the contract, which induced the other party of
the contract to enter into the contract. In case other party enter into contract on the basis of
misrepresentation suffer any loss or damage because of the misrepresentation, then such innocent
party has right to cancel the contract. It must be noted that, misrepresentation is considered as the
form of misleading and deceptive conduct and section 18 of the ACL deals with the misleading
and deceptive conduct. Following are the most essential factors for the existence of the
misrepresentation:
 Misrepresentation must be the statement related to the fact of the contract.
 Another important factor is, such statement of fact must be false in nature.
 Last, party must relied on the statement of fact for entering into the contract.
Application:
In the present case, Alto purchased painting for less than $40000 that is for $2000 only and he
purchased this painting for personal use. Therefore, under section 3 he is qualified as consumer
of the product.
In the present case, Magda fails to comply with the section 56 of the Act because painting
supplied by her are made on low quality paper and in description she stated that high quality
material is used. She is liable for breaching the consumer warranty under section 56 which states
if any person supplies any goods in context of trade or commerce and by description to the
consumer then such goods must be accompanied with the guarantee that the stated goods are

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complied with the description stated by seller. Therefore, she breaches provision under section
56 of the Act.
In the present case, Magda made representation in context of the fact related to the Silton to the
Alton and such representation was false in nature and because of this representation, Alton enters
into the contract with the Magda. On the basis of the above facts, following are the most
essential factors for the existence of the misrepresentation:
 Misrepresentation must be the statement related to the fact of the contract.
 Another important factor is, such statement of fact must be false in nature.
 Last, party must relied on the statement of fact for entering into the contract.
Therefore, it can be said that the Magda misrepresent facts for inducing the Alton to enter into
the contract.
Conclusion:
Alton is considered as the consumer under section 3 of the Act, and in context of this transaction
he can claim damages under section 54 and section 18 of the ACL because Magda breach these
sections.

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Answer 2
Consideration is considered as the price for a promise. There are number of jurisdictions in
which consideration is not considered as important elements of the contract, and it is only
considered as the factor through which parties reached to a binding agreement. In context of
common law, consideration is considered as the essential element of the contract. In other words,
for the purpose of agreement to be binding in nature the promise must give consideration to the
promisor in exchange of promise received by them. Therefore, promises which are gratuitous in
nature are usually not enforceable.
Consideration must be valid and usually in case of contract law consideration is valid if it has
some value. However, exception is also there which stated that consideration is not valid in some
situations and some of these situations are stated below:
Past consideration- it is necessary that consideration must be existed with at the time or after the
promise. In other words, in case consideration exists before the existence of the promise, then it
is not considered as the valid consideration. This can be understood through case law Roscorla v
Thomas, (1842) 3 QB 234. In this case, Court stated that promise was not enforceable because in
this case only consideration which was exchanged between the parties was the soundness of the
horse context into the contract, and this promise exist before the promise was made between the
parties.
However, there is an exception also which states that past consideration can be considered as the
valid consideration if:
 Consideration is provided after the request made by the promisor.
 Parties to the contract develop the understanding that the act would be already
remunerated.
 Promise between the parties occurred in advance already and such promise is enforceable
in nature.
Performance of existing duty- in case promise is already bound in context of contract to the
promisor, then general rule is applied which stated existing contractual obligation is not
considered as the valid consideration unless some additional advantage is provided to the

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promisor. However, in some cases it is difficult to determine the additional benefit provided to
the promisor. Particularly, advantage exists when performance related to the existing duty avoids
the issues that are related to the non-performance. This rule is introduced in case law Stilk v
Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168 in which Court stated that,
authority in lieu of proposal that performing a duty that a person was already bounded towards
the other party to be performed was not considered as the valid consideration for any extra
promise made by other party. The most important reason behind this rule was preventing the
contractual blackmail, which means generally party threatens not to perform their contractual
obligations unless such person gets more consideration in comparison of original consideration
agreed between the parties.
However, the position is completely different in case promise contractually bound to a 3rd party
for the purpose of performing the obligation. In case when the promise is duty in the contract is
obligated towards the third party then performance of the duty or promise to perform the duty is
considered as the good consideration. This can be understood through case law, Pao On v Lau
Yiu Long, [1979] 3 WLR 435. In this case, Court stated that consideration for the existing duty
was considered as the good consideration in some particular cases such as it will be considered
as the good consideration if the act done by the party was done at the request made by the
promisor, and the parties understood that the act done by party would be remunerated in some
way and in case promise had been given be the parties in advance for an act then it would be
legally enforceable.
Part payment of debt- another general rule deals with the part payment of the debt and this rule
stated that pat payment related to any debt cannot be considered as the good consideration on the
promise of the creditor to forgo the balance. While paying the part of the debt the promisee is
doing not more than performing the existing contractual duty owned to the promisor. In this rule,
it can be said that the payment related to the lesser sum on the day cannot be considered as the
satisfaction for the whole amount, known as the pinell’s rule and later this rule is confirmed by
the Foakes v Beer, (1884) 9 App Cas 605.
Reference:

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ACL. Consideration. Available at: https://www.australiancontractlaw.com/law/formation-
consideration.html#considpast. Accessed on 20th May 2018.
Carlill v Carbolic Smoke Ball Co, Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1.
Competition and consumer Act 2010- Section 18.
Competition and consumer Act 2010- Section 3.
Competition and consumer Act 2010- Section 56.
Foakes v Beer, (1884) 9 App Cas 605.
Hyde v Wrench, (1840) Beav 334
Medtel Pty Ltd v Courtney (2003) 130 FCR 182 at [64] and [70].
Pao On v Lau Yiu Long, [1979] 3 WLR 435
Roscorla v Thomas, (1842) 3 QB 234.
Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168