Solutions to Chapter 3 Review Questions
2. An offer may lapse in the following circumstances:

It is revoked (cancelled) by the party who made the offer prior to acceptance

The other party rejects the offer.

The other party makes a counter-offer.

One of the parties dies before the offer is accepted.

The offer is not accepted in the time permitted.

The offer is conditional, and that condition is not satisfied. (p62)
4. An illegal contract is one that is created for an illegal objective (eg. to sell illegal substances or
commit a crime). An unenforceable contract does not necessarily involve an illegal objective, but
it cannot be enforced due to some error or defect; for example land cannot be transferred
except with a contract in writing and assignment of copyright cannot occur without a contract in
writing. (p80)
6. The issue here concerns consideration. Remember that consideration is a necessary part of
every simple contract and involves the exchange or transfer of something for something.
Essentially one party receives a benefit and takes on a burden or gives something up in return
for the other party receiving a benefit and taking on a burden or giving something up. The issue
here is whether there is valid consideration to support, For Max’s promise that the paint is
sunproof to be valid consideration it must be present or future. However, in the facts, Max’s
promise only occurred after the contract was signed. This means that, while Steve did provide
consideration for the paint job (i.e. $900), he did not provide consideration for sunproof paint.
Steve, therefore, may not be able to enforce Max’s promise because all he offered in return was
past consideration (Roscorla v Thomas (1842) 3 QB 234). There is no extra burden accepted by
Steve, to balance the extra benefit promised by Max. (p66)
Steve may be able to rely on promissory estoppel as a way of overcoming the lack of extra
consideration. That is, Max made a promise that Steve relied on heavily and Steve would suffer
great loss if the promise is not honoured.
8. Is Jess legally obligated to pay Electra? (b) No, because the return of the wallet counts as past
consideration. (p66)
10. This question examines some of the basic rules of offer and acceptance and the requirement
that there be a true meeting of minds before a binding contract exists. Therefore, in processing
the sequence of facts in detail we may conclude the following:



The price tag of $8000 is an invitation to treat. Essentially it is an invitation by Chandler to
any interested customer to make an offer for the sculpture.
Monica responds by making an offer of $6000.
Chandler rejects Monica’s offer by making a counter-offer of $7500, therefore Monica’s
offer of $6000 lapses.



Monica rejects Chandler’s counter-offer of $7500 by making a counter-offer of $6500,
therefore Chandler’s counter- offer of $7500 lapses.
Chandler rejects Monica’s counter-offer of $6500, which lapses.
Monica then purports to accept Chandler’s earlier counter-offer of $7500, believing that
offer and acceptance and therefore a true meeting of minds, is complete.
However, because of the earlier rejection of this counter-offer it has lapsed and no longer
exists. In fact, Monica has now become the offeror in making the fresh offer to Chandler of
$7500, which provides to Chandler the offeree, the choice whether to accept or reject the
offer. Chandler does not reply and therefore there is no acceptance, no contract between
Monica and Chandler, and Chandler is free to sell the sculpture to Rachel for $8000. (p61-63)
12. Fabien already agreed to his recipes being placed in the book without payment. This means
that when Monica said she would pay him $2,000 he was not providing any consideration in
return. Fabien cannot claim that the provision of his recipes counts as consideration because it is
past consideration (Roscorla v Thomas (1842) 3 QB 234). As Fabien has not provided fresh
consideration, no new contract has been formed so Monica is not legally obligated to pay him
the $2,000 she promised.
In Win’s case, the recipes she has prepared for Monica in the course of her employment at
Beyond Yum already belong to her employer, Monica. Therefore the inclusion of Win’s recipes
in the recipe book do not represent consideration for any new contract. Win is doing no more
than she is already required to do under her existing contract of employment. (p67)
14. When a representation is made to induce a contract it is not sufficient that the statement is
only true at the time it is made. Dawn must keep Cordelia informed of a change in
circumstances. Cordelia will be successful in rescinding the contract. (75)
Had Dawn lied in her statement, then genuine consent would not have been given by Cordelia
due to fraudulent misrepresentation. As a result the contract is void. Cordelia could sue Dawn
for damages. (76)
16. Tara’s contract with Dawn is a voidable contract which enables her to choose to set the
contract aside as the elements of legal capacity and reality of consent are absent from the
agreement. Tara can argue she has a lack of legal capacity because she has a mental disorder,
of which Dawn was aware, that meant she did not properly understand the contract into which
she entered. Further, Tara can argue there is a lack of genuine consent due to either
unconscionable conduct (Dawn was exploiting Tara’s mental disability and affection for her for
her own advantage) or undue influence (Dawn holds a position of trust with Tara that she is
abusing).
Dawn may sue Global Domination Advisors Pty Ltd for the action of their employee Angel for
providing her information that was out of date and incorrect. Dawn will take action in negligent
misrepresentation and claim damages for her loss. This is because Angel is holding himself out
as an expert in the field and therefore has a duty of care to advise Dawn carefully. (See Esso
Petroleum v Mardon (1976) QB 801) (p68-71)
18. George would not be successful in suing Kramer because the contract was made for an
illegal objective (i.e. to defraud the police). Therefore, the contract is void for illegality and
cannot be successfully upheld by George. (p72)
20. The client –solicitor relationship is a fiduciary one. As a result a solicitor is in a position to use
undue influence to coerce a client into a contract. The client should take steps to ensure that the
solicitor cannot abuse their influencer. Having the car independently checked is a solution. (p78)
The arm's length principle (ALP) is the condition or the fact that the parties to a transaction are
independent and on an equal footing. Such a transaction is known as an "arm's-length
transaction". It is used specifically in contract law to arrange an equitable agreement that will
stand up to legal scrutiny, even though the parties may have shared interests (e.g., employeremployee) or are too closely related to be seen as completely independent (e.g., the parties
have familial ties).
22. (a) True
(b) False
(c) True
(d) True
(e) False
(f) False
(g) True
(h) True
(i) True
24. (a) In the case of Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256 (discussed at page 62-63),
Mrs. Carlill’s purchase and use of the carbolic smoke ball in reliance on the company’s offer,
in the newspaper amounted to acceptance of the offer. It was considered to be a unilateral
contract where the offeree’s fulfilment of their obligations under the contract demonstrates
acceptance.
Usually, silence does not amount to acceptance. However, in the case of Empirnall Holdings
v Mark Machon Paull Partners (1988) 14 NSWLR 523 p 64 the court held that silence, when
combined with other circumstances may amount to acceptance. In this case the
developer’s conduct when he paid the architect according to the progress claim schedule
from the contract he maintained did not exist would suggest to a reasonable person that the
developer had in fact accepted the architect’s offer.
(b) From the facts, it would appear that Escardo made no promises to Steep that he would
receive extra payment for undertaking duties as acting foreperson in June. However, it is
clear that an extra $50 a week was promised by Escardo to Steep if he maintained the
position as foreperson after June. This is future consideration and is binding. (p67)
( c ) Original offer is revoked by the counter offer (p62)