BLAW10001 Lecture Notes - Lecture 4: Ratio Decidendi, Visitengland, All England Law Reports
14 May 2018
School
Department
Course
Professor
Contract Formation
1. The legal concept of a contract
•A contact is a legally enforceable agreement between two or more persons (‘parties’)
•Contracts create legal obligations - consist of correlative rights and duties
•Contractual rights and duties can be discharged by voluntary performance
•If there is a failure to perform the contract, a breach of contract may arise
-Provides legal basis for bringing an action in court to enforce the agreement
•In most cases, people tend to do what they have bound themselves by contract to do
-Convenient
-Builds trust
-Avoids lawsuits
•Generally, contracting parties can rely on their arguments, making them a useful and reliable
planning tool.
2. Capacity to contract
•Adult persons (over the age of 18) who are of sound mind, and artificial persons (corporations,
govt. bodies) have full contractual capacity
•Minors may also be bound by contract:
-for purchase of ‘necessities’
-for things that give a benefit (e.g. contract of employment)
•Persons with a mental disability are bound by agreements reached in lucid periods, but not
otherwise
•People who are bankrupt (insolvent) have restricted capacity to enter contracts
•People under the influence of drugs may be so unaware they cannot bind themselves
3. The right to enforce contractual obligations
•Contractual obligations only exists between those who have agreed to undertake them (the
parties)
•It follows that only parties to the contract have the right to bring an action to enforce it. Called
“privity” of a contract
Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460
Summary: Mr Coulls gave O’Neil Construction right to dig up stone for a royalty, paid to Mrs
Coulls. Mr Coulls died, quarrying continued. Unknown whether Estate or Mrs Coulls entitled to
money.
Decision: O’Neil owed no contractual obligations to Mrs Coulls as she is not a party to the
contract, royalties paid to Mr Coulls estate.
Ratio decidendi: Although Mrs Coulls mentioned in the contract, not a party as no consideration
provided to bind contract, therefore, she cannot sue.
4. How contacts are created
•Contracts come into existence when (and only when) all three elements are all present:
i. Intention to be legally bound;
ii. Sufficient agreement (consensus) over essential details; and
iii. Either (a) formal execution in a deed or (b) doctrine of consideration (each party gave
up something in exchange for something else
5. The element of intention to be bound (4.i.)
•An agreement is only legally enforceable if the parties intended to be legally bound
•Intention is to be judged objectively
•The court asks whether, in the circumstances, a reasonable person would regard the
agreement as intended to be binding
6. Factors affecting intention
•Domestic arrangements and social agreements
-If you are in a social relationship, judge is allowed to presume it is a casual arrangement
Price v Easton (1833) 4 B & Ad 433
Summary: A builder owed money to Price but lacked money. Easton agreed with builder to pay
debt to price in exchange for work. Easton did not pay, Price bought action against him.
Decision: Price not entitled to enforce the promise as not a party
Ratio decidendi: Under the doctrine of privity of contract, Price did not acquire legally
enforceable rights under that contract.
Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256
Summary: CSBC advertised that if product did not work, would pay £100. Deposited £1000 in
bank account to demonstrate seriousness of offer. Carlill got flu, claimed reward. CSBC refused
to pay, claimed ad was not enforceable contract.
Decision: £1000 in bank account demonstrates promise intended to be legally binding
Ratio decidendi: If sufficient circumstances exist (£1000 deposit) to infer promise was legally
binding, it is.
Decision: Act of buying and using smoke ball provided consideration for enforceable agreement
Ratio decidendi: Act performed in expectation of known promise is consideration, even though
act is performed before promise becomes legally binding
Balfour v Balfour (1919) 2 KB 571
Summary: Husband and wife living in Ceylon, go visit England. Wife ill and told to remain in
England, husband promises to pay £30 each month. Got divorced, wife still wanted support.
Decision: Not a legally enforceable agreement, as not intended to be by husband
Ratio decidendi: Domestic agreements made between spouses do not intend to have legal
consequences
Merritt v Merritt (1970) WLR 1211
Summary: Husband and wife, joint home ownership and repayments. Separated, agreed wife to
finish paying off loan, then husband to transfer sole ownership to her. Husband refused.
Decision: Inferred that agreement was intend to be legally enforceable - wife gets house
Ratio decidendi: When goodwill between married persons breaks down, can be inferred that
agreements create legal obligations
Document Summary
Provides legal basis for bringing an action in court to enforce the agreement: in most cases, people tend to do what they have bound themselves by contract to do. Coulls v bagot"s executor & trustee co ltd (1967) 119 clr 460. Summary: mr coulls gave o"neil construction right to dig up stone for a royalty, paid to mrs. Unknown whether estate or mrs coulls entitled to money. Decision: o"neil owed no contractual obligations to mrs coulls as she is not a party to the contract, royalties paid to mr coulls estate. Ratio decidendi: although mrs coulls mentioned in the contract, not a party as no consideration provided to bind contract, therefore, she cannot sue. Price v easton (1833) 4 b & ad 433. Summary: a builder owed money to price but lacked money. Easton agreed with builder to pay debt to price in exchange for work. Easton did not pay, price bought action against him.
