Making a contract

I’ve written on this before but there’s been a recent example of an unusual sort of contract –the contract where the ‘consideration’ does not go to a party to the contract. Normally it does- to use same example I used before I pay the butcher, he gives me the meat I have purchased. My consideration to him is the money his consideration to me is the meat.

But sometimes the consideration can be paid to third person, or sometimes it can be by doing something.

But first a bit of history. In 1892 the Carbolic Smoke Ball Company advertised its smoke balls as a flu remedy. Its ads were imaginative –that it would pay anyone who caught flu after using its smoke balls would be ‘rewarded’ with £100, (then a lot of money by comparision a skilled factory workers wage was about £240 per year) Its ads went on to say the company had paid £1000 into its bank as security.

Mrs Carlill used the ball but caught flu. She claimed the reward. The company said it was only an advertising trick. Mrs Carlill sued. The company’s barrister was H H Asquith –later prime minister but despite having a ‘top gun’ the company lost. It appealed. It lost again. The judges said
(1) that the advert was a unilateral offer to all the world
(2) that satisfying conditions for using the smokeball constituted acceptance of the offer
(3) that purchasing or merely using the smokeball constituted good consideration, because it was a distinct detriment incurred at the behest of the company and, furthermore, more people buying smokeballs by relying on the advert was a clear benefit to Carbolic
(4) that the company's claim that £1000 was deposited at the Alliance Bank showed the serious intention to be legally bound
And so you had the four things needed for a legal contract.

The aftermath of the case is that the company failed about four years later (having in the meantime used the whole case to its advantage –its new adverts referring to the case which had got a lot of publicity and saying that only Mrs Carlill and two other people out of the thousands who had bought the smoke ball had claimed the reward so that the rest must be very satisfied customers). Mrs Carlill lived many more years dieing at the age of 92. Her death certificate gave two reasons for her death –old age and influenza.

Now to bring this up to date. Skiwing leased a coffee shop in the Imperial Arcade in Sydney. The coffee shop was on the first floor looking over and down into the Pitt Street Mall. Skiwing wanted to extend by building a balcony out onto the mall (it had a long lease so it thought –wrongly for reasons I might write about another day- that any money it spent on the extensions would be a good investment). It approached Stocklands the owner of the Arcade.It wrote back that it would not object to Skiwing’s ‘pursuing Sydney City Council to obtain approval’ for erection of a balcony so long as some conditions were satisfied.

Skiwing applied for that approval. It spent money paying planners, archietects and so on. Then Stocklands had a change of heart. IT revoked the consent and said that Skiwing could not alter the coffee shop in any way- invoking a clause in the lease to that effect..

As part of an expensive saga of litigation Skiwing claimed the letter from Stocklands was an offer. The Appeal Panel of the Administrative Decisions Tribunal (which deals with retail lease cases) agreed . It said Skiwing did not have to ‘pursue’ this approval. It could, ignore the offer entirely. But if it accepted the offer by submitting an application to the Council in compliance with these conditions, Stockland would be bound by its promise not to raise any objection. Skiwing’s expenditure of time and money in preparing and submitting the application would be "consideration’ even though there was no direct benefit to Stockland. The balcony, when constructed, would undoubtedly have been of benefit to Stockland.

Further once Stockland’s staff knew that Skiwing was proceeding with the application, and had encouraged Skiwing (it did so in further letters) to engage planners and to spend more on the project, the offer became one which (like the lessor’s offer of a new lease in an option) cannot be revoked.

This all shows not all contracts are as simple as me buying my meat.