Business Law | Commercial law



(contract law problem)


Max Power is a famous Hollywood actor. He is currently separated from his wife of six months, Pamela. Pam’s regular boozy nights on the town with other A-list celebrities have been splashed across the front pages of popular magazines like Who Weekly and New Idea. Power’s manager points out that although separated, Pam’s wild ways are affecting Max’s “clean cut” reputation. Max makes a promise to Pam that he will pay her $2,000 per week on condition that Pam “is not intoxicated in public”. Pam becomes a teetotaller. Can Pam sue Max on his promise should Max fail to pay?



Please read the comments on the margin.


Issue: Did Pam and Max intend their agreement to be legally binding?






Law: (Legal principle relevant to the above Issue)

  • In domestic, family and social agreements the law presumes that the parties to the agreement do not intend to make their promises legally binding. However, this presumption can be denied if the plaintiff provides evidence to prove there was a commercial intention in the agreement. For example see Merrit v Merrit
  • Merritt v Merritt: an agreement which required the husband to transfer his interest in the matrimonial home to his wife was legally binding because the presumption does not apply when the parties are separated.



Application of law: It could be argued that Pam and Max intended to be bound by the agreement to pay $2,000 per week because:


  • Max and Pam were separated at the time of the agreement (Merritt v Merritt); and
  • There was a commercial context to the agreement instigated by Max’s manager – the protection of Max’s reputation, which is very important in the acting profession and a significant and serious amount was at stake.
  • The parties had reached a consensus.
  • The agreement terms were sufficiently specific.
  • A serious detriment would be suffered by Pam if the promises were not honoured by Max.









Conclusion: Max and Pam intended their agreement to be legally binding. Pam can take action against Max should he fail to pay the money under the agreement.

Here I have summarised the legal principle relevant to the question.  Remember,  the name of the case (without the full citation) that established the legal principle should be written here.  Some students like to note the key words of the legal principle next to the case name or legislation. It acts as a prompt for them on what needs to be covered in the Application.


The main issue in this case is where all the elements of a valid contract are fulfilled between Derrick and Samantha, considering that their communication was through the email. Does the email communication between Samantha and Derrick amount to an invitation to treat?

A contract includes the basic elements of intention, agreement, consideration, capacity, certainty, and legality. In entering a contract, an offer or invitation to treat is given and the other party accepts. An offer is made to a specific person while and invitation to treat is made to the public.  The contract will be validated if all these elements are met and there is evidence of communication to that effect as required in Sale of Goods Act 1896, (Qld).Most important, any communication must show that there is an invitation to treat, in the sense that an offer must be made and response given to the offer. The channel of communication notwithstanding, the most important element is to show all the elements of contracts. According to s24(1) of the Electronic Transaction Act 2001(legislation), if addressee has designated an information system to receive  electronic communication, the information is received once it enters into the information system.