The Law Handbook 2024

Chapter 7.1: How contract law works 675 Acceptance of an offer occurs when the party responding to the offer (called the offeree) agrees to the offer by way of a clear statement to indicate their acceptance or by some conduct or act on their part. Acceptance must be unequivocal and effectively communicated to the offeror: the law does not deem or presume a person has accepted an offer merely because they have not expressly rejected it. However, acceptance of an offer can also be implied by the parties’ conduct. If, for example, A gives B a quote to provide cleaning services and, after receiving this quote, B tells A to do the work, this constitutes acceptance of the offer and is a binding contract such that B is bound to pay A the quoted amount. 2 Intention to create legal relations A contract does not exist just because there is an agreement between two or more people. The parties to the agreement must intend to enter into a legally binding agreement. The law is not so concerned with what the parties subjectively intended, but what a reasonable person would consider the parties intended in the circumstances in which the agreement was reached. Such an intention will rarely be stated explicitly in a written document, but will be inferred from matters such as the nature of the relationship between the parties and the nature of the agreement. Where the parties are entering into an arms- length commercial arrangement, it will generally be presumed that the parties objectively intended to create legal relations and make a binding contract. Where an agreement is made between family members or friends and is more of a domestic or social arrangement, then it is more likely that an intention to create legal relations will not be found. In these situations, it is important to make it clear, either expressly or otherwise, that the parties intend to enter into a legally binding arrangement. For example, offering a friend a ride in your car is not usually intended to create legally binding relations, even if that friend offers to give you money for petrol. However, if you wanted to create a legally binding arrangement that you will drive your friend to work every day for six months in exchange for your friend paying you $20 a week to go towards paying the running costs of your car, you should put the agreement in writing and expressly state that you both agree to create a legally binding arrangement. Further circumstances from which an objective intention to create legal relations could be inferred would be if an invoice or written receipt was provided upon service or payment. 3 Consideration ‘Consideration’ is the price paid for a promise made by one party to the other party. The price must be something of value, although it does not have to be money. Consideration may be a right, interest or benefit going to one party, or some forbearance, detriment or loss given, undertaken, tolerated or suffered by the other party. So long as consideration exists and is of real value, a court will not question its adequacy. For example, the promise to pay a nominal amount of money as rent in return for the lease of a house could be good consideration. However, providing love and affection or a voluntary gift is not deemed to be valid consideration. Also, the consideration must not be illegal or impossible to perform. There is an exception to this rule: documents under seal (i.e. deeds) do not require consideration for there to be a binding contract. Deeds are often used in circumstances where the parties intend for there to be a legally binding agreement, even though there is no consideration or there is uncertainty about whether there is valid consideration (e.g. where a parent wishes to gift a car to their child or when parties want to settle their disputes). For a deed to be valid in Victoria, it must be in writing and: • in the case of individuals, be signed and expressed to be sealed and delivered (see ss 73, 73A Property Law Act 1958 (Vic) ( ‘Property Act’ )); or • in the case of companies, be expressed to be executed as a deed and either signed or sealed and witnessed by two directors, or by a director and a secretary, or for a proprietary company that has a sole director who is also the sole secretary, by just the director (see s 74 Property Act; s 127 Corporations Act 2001 (Cth)). 4 Legal capacity Not all people are free to enter into a valid contract. Contracts involving: • people who have a mental impairment; • young people (minors);