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Contracts

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Table of Contents

Contents

LECTURE 1 (14 May 2015) .................................................................................. 8 Contract ......................................................................................................................................... 9 Sources of Contract Law ................................................................................................................... 9

• Unilateral Contract ..................................................................................................... 9 • Assumpsit ................................................................................................................ 9 • Freedom of Contract. ................................................................................................10

Objective theory of Contract ............................................................................................................10 Contract formation .........................................................................................................................10 Agreements ...................................................................................................................................10 Offer and Acceptance ......................................................................................................................11

What is an Offer?.............................................................................................................11 Offer v Invitation to Treat .................................................................................................11 Contract formation Questions ............................................................................................12

For any Question:...........................................................................................................................13 Hint ..............................................................................................................................................13

Lecture 2: The Fact of Agreement: Acceptance ................................................. 14 Rules of Acceptance ........................................................................................................................15

• Communication ........................................................................................................15 • Correspondence .......................................................................................................15 (ii) Denning ..............................................................................................................16 (iii) Third approach .....................................................................................................16 • Knowledge ...............................................................................................................16 • Duration ..................................................................................................................17 • Rejection .................................................................................................................17 • Lapse ......................................................................................................................17 • Death .....................................................................................................................17

Certainty and Completeness ............................................................................................................18 • Uncertainty vs Ambiguity...........................................................................................18

Three Clauses ................................................................................................................................19 1. Agreements to Negotiate ...........................................................................................19 2. Subject to Contract ...................................................................................................19 3. Subject to Finance ....................................................................................................20

Lecture 3: Consideration .................................................................................. 21 Aims and Objectives .......................................................................................................................21 Consideration ................................................................................................................................22

1. An Act (Unilateral contract) .......................................................................................22 2. Bilateral Contract .....................................................................................................22

Rules for Consideration ...................................................................................................................22 • Consideration must be referable to a promise ..............................................................22 • Consideration must move from the Promisee ...............................................................22 • Consideration need only be Sufficient, it need not be adequate ......................................23 • Past Consideration is not good consideration ................................................................23 • Vague and Uncertain Promises ...................................................................................23 • Existing Legal Duty ...................................................................................................23 • Existing Contractual Duties ........................................................................................23 • Part Payment of a Debt is not good consideration for the discharge of the debt ................23

Cases ...........................................................................................................................................24

Lecture 4: Estoppel & Intention to Create Legal Relations ............................... 25 Aims and Objectives .......................................................................................................................25

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Equitable Estoppel ..........................................................................................................................25 Estoppel ........................................................................................................................................26 Elements .......................................................................................................................................26

1. There must be a Promise ...........................................................................................26 2. There must be reliance ..............................................................................................26 3. It must be unconscionable for the other party to resile from the representation ...............26 Differences: ....................................................................................................................26 Context – Promissory Estoppel ..........................................................................................26 Minimum Equity – What is this? .........................................................................................28

Intention to Create Legal Relations ...................................................................................................29 Elements:......................................................................................................................................29

• Family Situation .......................................................................................................29 • Commercial situation ................................................................................................29 Family Situations .............................................................................................................29 Commercial Situation .......................................................................................................29

Writing Requirements .....................................................................................................................31 Effect of Non-Compliance .................................................................................................31

Variation and Discharge ..................................................................................................................31

Lecture 5: Terms of a contract ......................................................................... 33 Aims and Objectives .......................................................................................................................33 Terms of a Contract ........................................................................................................................33 Introduction to Terms .....................................................................................................................34 Express Terms: ..............................................................................................................................34 Oral ..............................................................................................................................................34 How do you determine?? .................................................................................................................35

• Objective Test ..........................................................................................................35

Where the statement is of such importance that the offeree would not have entered into the contract if he had known it to be untrue, it is likely to be a term.......................................................................................................................... 36

Collateral Contract ..........................................................................................................................37 In writing ......................................................................................................................................40 Parol (oral) Evidence Rule ...............................................................................................................43 Implied Terms ...............................................................................................................................44

17 The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls – Lord Hoffman at 17 ..................................................................................................................... 44

Implied in fact ...............................................................................................................................44 Formal ..........................................................................................................................................44

(1) Reasonable and equitable ......................................................................................45 (2) Necessary to give business efficacy .........................................................................45 (3) So obvious that it ‘goes without saying’ ...................................................................45 (4) Capable of clear expression....................................................................................45 (5) must not contradict any express term of the contract ................................................45

Informal ........................................................................................................................................46

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Is the implication of the term necessary for reasonable or effective operation of the contract? In order to answer this, look to the BP test, but rather look at them as strict criteria, look at the elements as things that are relevant to consider . 46

Implied in Law ...............................................................................................................................46 o Categorisation ..........................................................................................................46 o Test of Necessity ......................................................................................................46

Implied by Custom and Usage (Also called trade usage) ......................................................................47 o Notorious ................................................................................................................47 o Certain ....................................................................................................................47 o Legal ......................................................................................................................47 o Reasonable ..............................................................................................................47

Lecture 6: Exclusion and Integration Clauses; Privity ...................................... 48 Aims and Objectives .......................................................................................................................48 The Meaning of Terms.....................................................................................................................48 General Construction of Contracts ....................................................................................................49 Exclusion Clauses ...........................................................................................................................49

Exam Tips ......................................................................................................................49 Integration Clauses ........................................................................................................................51 Privity ...........................................................................................................................................52 Exceptions to Privity .......................................................................................................................52

Lecture 7: Vitiating Factors .............................................................................. 56 Aims and Objectives .......................................................................................................................56 Vitiating Factors .............................................................................................................................56

(a) Misrepresentation .................................................................................................56 (b) Mistake ...............................................................................................................56 (c) Duress ................................................................................................................56

Overview .......................................................................................................................................57 Misrepresentation ...........................................................................................................................57

o Statement of Fact .....................................................................................................57 o + Statement is False .................................................................................................58 o + Statement Must induce Entry into Contract ...............................................................58

Mistake .........................................................................................................................................60 Common Mistake............................................................................................................................60 Mutual Mistake ...............................................................................................................................60 Unilateral Mistake ...........................................................................................................................61

o Terms of the contract ................................................................................................61 o Identity of the other Party (Distance/Face to Face) .......................................................61

Rectification ...................................................................................................................................62 Non Est Factum ..............................................................................................................................62 Duress ..........................................................................................................................................63

1. Physical threat against a person .................................................................................63 2. Physical threat against goods .....................................................................................63 3. Economic.................................................................................................................63

LECTURE 8 (16 July 2015) ................................................................................ 64 (d) Undue Influence ..............................................................................................................64 (e) Unconscionable conduct ...................................................................................................64 (f) Rescission .................................................................................................................................64 (g) Statutory Unconsionability ................................................................................................64

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(2) Unconscionable conduct ...................................................................................................64 (h) Contracts Review Act 1980 (NSW) .....................................................................................64 (i) Misleading or Deceptive Conduct ..................................................................................................64 (j) Unfair Terms ..............................................................................................................................65 Undue Influence .............................................................................................................................66 Presumed Undue Influence ..............................................................................................................66 Actual Undue Influence ...................................................................................................................67 Unconsionability (Amadio unconsionability) .......................................................................................68 Rescission .....................................................................................................................................68 Third Parties ..................................................................................................................................69 Statutes (Contracts Review Act) .......................................................................................................69 Remedies S 7 ................................................................................................................................70 Section 17 & 18 .............................................................................................................................70 Exclusions .....................................................................................................................................70 Unfair Contract Terms Regime .........................................................................................................71 Misleading or Deceptive Conduct ......................................................................................................71

• Silence and Half Truths in the context of misleading conduct .........................................72

Lecture 9 Discharge ......................................................................................... 74 Aims and Objectives .......................................................................................................................74 Discharge ......................................................................................................................................75 Performance of a contract ...............................................................................................................75 Discharge by Performance ...............................................................................................................75 Discharge by Breach .......................................................................................................................76

o Non Performance ......................................................................................................76 o Late Performance .....................................................................................................76 o Defective Performance ..............................................................................................76 o Condition .................................................................................................................77 o Warranty .................................................................................................................77 o Intermediate Term ...................................................................................................77 Condition/Warranty? ........................................................................................................77 Intermediate Term ..........................................................................................................78

Discharge for Repudiation (Refusal to perform a duty) ........................................................................78 • Elements .................................................................................................................78 Seriousness ....................................................................................................................79 Repudiation by Conduct (How to Prove) .............................................................................79

Termination (Election) ....................................................................................................................80 Effect of Discharge .........................................................................................................................81

Accrued / Unconditionally Accrued Obligation ......................................................................82 Frustration ....................................................................................................................................82

1. Risk Assumption .......................................................................................................82 2. Frustrating Event ......................................................................................................82 Self-Induced Frustration ...................................................................................................83

Lecture 11: Remedies ....................................................................................... 84 Restitution (Unjust enrichment) .......................................................................................................85 Unliquidated Damages ....................................................................................................................85 Loss .............................................................................................................................................85 Causation ......................................................................................................................................85 Remoteness ...................................................................................................................................86

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• Foreseeability ..........................................................................................................86 o 1 – Ordinary Loss .....................................................................................................86 o 2 – Extraordinary (Special) Loss .................................................................................86

Measure of Damages ......................................................................................................................87 Expectation ...................................................................................................................................87 Reliance Damages ..........................................................................................................................87 Contractual Damages for Hurt Feelings (Tortious Damages) ................................................................88 Mitigation (for unliquidated damages) ...............................................................................................89 Summary (unliquidated damages) ....................................................................................................89 Liquidated Damages .......................................................................................................................91

Liquidated Damages / Penalty Clause – How do you tell? ......................................................91 Equitable Remedies (Rectification) ....................................................................................................93

Specific Performance or Injunction .....................................................................................93 Injunction .......................................................................................................................93 Rectification for Common Mistake ......................................................................................93 Rectification for Unilateral Mistake .....................................................................................93

Restitution .....................................................................................................................................93 Restitution After Frustration ..............................................................................................94 Partial Performance .........................................................................................................94 Part Payment ..................................................................................................................94

Formation of Contract ...................................................................................... 96 The Fact of Agreement: Offers .........................................................................................................96

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 .....................................................96 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 ................................................................96 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401 ....96

The Fact of Agreement: Acceptance ..................................................................................................97 R v Clarke (1927) 40 CLR 227 ...........................................................................................97 Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965 ......................................97 Stevenson, Jacques and Co v McLean (1880) 5 QBD 346 ......................................................97 Dickinson v Dodds (1876) 2 Ch D 463 ................................................................................98

Certainty and Completeness ............................................................................................................98 Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 ..............................................98 Whitlock v Brew (1968) 118 CLR 445 .................................................................................98 United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177 ....99 Masters v Cameron (1954) 91 CLR 353 ..............................................................................99 Meehan v Jones (1982) 149 CLR 571 ............................................................................... 100

Consideration .............................................................................................................................. 100 Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424 ....................................... 100 Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 ............................................ 100 Williams v Roffey Bros and Nicholls (Contractors) [1991] 1 QB 1 ......................................... 100 Foakes v Beer (1884) 9 App Cas 605 ............................................................................... 101

Equitable Estoppel ........................................................................................................................ 101 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 ............................................. 101

Formation of a Contract - Intention to Create Legal Relations ............................................................ 102 Balfour v Balfour [1919] 2 KB 571 ................................................................................... 102 Jones v Padavatton [1969] 2 All ER 616 ........................................................................... 102 Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 All ER 117 ..................... 102 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 ............................. 102

Terms of a Contract ........................................................................................ 103 (a) Express Terms .............................................................................................................. 103

Oscar Chess v Williams [1957] 1 All ER 325 ...................................................................... 103 J J Savage and Sons v Blakney (1970) 119 CLR 435 .......................................................... 103 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129 ............................................ 104

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Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 ................................................ 104 Thornton v Shoe Lane Parking [1971] 2 QB 163 ................................................................ 104 Parker v South Eastern Railway Co (1877) 2 CPD 416 ........................................................ 105 D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 ............................................ 105

(b) Implied Terms ............................................................................................................... 105 Codelfa Construction v State Rail Authority of New South Wales (1982) 149 CLR 337 ............ 105 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 ........................................................... 106 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 33 ..................... 106 Con-Stan ...................................................................................................................... 106 Darlington Futures v Delco Australia (1986) 161 CLR 500 ................................................... 106 Sydney City Council v West (1965) 114 CLR 481 ............................................................... 107

Privity of Contract ........................................................................................................................ 107 Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 ............................................ 107

Lecture 1: Contract Formation

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LECTURE 1 (14 May 2015) Aims and Objectives

At the end of this lecture students should understand the following:

A. the definition of contract;

B. the sources of contract law;

C. the various classifications of contracts;

D. the basic principles relating to answering problem questions;

E. the nature of an offer and the circumstances in which an offer is made

Introduction to Contract Law

Text: Radan & Gooley, Chapter 1 (see generally chapters 2, 3, 9, 26, 27, 28)

The introduction to the subject of Contracts looks at the following issues:

A. The definition of contract;

B. The sources of contract law;

C. The classification of contracts.

D. Freedom of contract

i) Capacity – who can enter into a contract

ii) Illegality and restraints of trade

Formation of Contract

The Fact of Agreement: Offers

Text: Radan & Gooley, Chapter 4 (paras 4.1-4.73)

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401

*Barry v Davies [2001] 1 All ER 944

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195

Lecture 1: Contract Formation

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Contract

• Contracts is about consensual obligations and what was the intention of each party at the time.

• Contracts forms one arm in the law of obligations. The law of obligations is thought of as:

Sources of Contract Law

• Forms of actions – your case must fit into a pre-defined set of fictional forms, if it didn’t you had no course

of action. The most common form of action was debt.

• A legal debt arises when you have an unconditionally accrued obligation to pay someone.

o The idea is that someone has earned the payment. E.g. at 9am tomorrow you agree to pay me

$20. At 9am one could say that your obligation has accrued. The question is has it unconditionally

accrued? Has the other party fulfilled their part of the obligations? Until both parties have fulfilled

their obligations there is no debt. (N.b. the other party does not have to fulfill their obligations

immediately. They may not have to fulfill it until next week etc)

o E.g. I order a coffee, the café begins to make it, I release I forgot my money, the coffee shop

refuses to hand me the coffee. Is this breach of contract? Under the forms of action, No, they have

not fulfilled their obligations until they hand me the coffee. Under the old system they have no

course of action. Under the new System however they do under a unilateral contract.

• Unilateral Contract. A contract where someone makes promise in return for someone doing

something. I promise to pay you $3.5 in return for you making me a cup of coffee. The contract comes

into existence when the person make me a cup of coffee.

o The problem is this doesn’t account for a lot of transactions today.

o You need to get to the point where you can simply enforce a promise. There is a difference

between:

i) I promise to pay you $3.5 if you make me a cup and coffee and;

ii) I promise to pay you $3.5 if you promise to make me a cup of coffee

iii) The exchange of promise is the exchange of contract.

• Contract is important when thinking about credit. How will you enforce a promise? This is done by taking

security. Previously, the action in debt was proprietary in nature. If I took a loan and didn’t pay, I would

have to pay the bank back, not because I owe them money but because they own the money. When you

were to deposit money in the bank, they now own the money.

• Assumpsit. If you assume an obligation toward someone, provided the other party has fulfilled their

bit, the law would enforce your obligations against you. If I paid you a some of money in return for the

promise to do something, e.g. mow my law. You attempt to mow my lawn but do a poor job, an action in

assumpsit would allow me to bring an action against them for trying and failing. This is called mis-

feasance.

o Mis-Feasance has been further extended to not trying at all. E.g. I pay you to cut my lawn, you

don’t even attempt to do so, you did nothing. Now I can sue to enforce the promise to cut my

lawn.

o The next step is the promise to pay in exchange for the promise to cut my lawn. As soon as

promises are exchanged, a contract is formed.

Law of Obligations

Torts

-Imposed obligations

Contracts

- Consent

Unjust enrichment Other – (Things that

don’t fit)

Lecture 1: Contract Formation

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• Freedom of Contract. You are free to enter into any contract on any terms However, once you sign

on, you are bound.

o Began to die when the UK parliament passed law to prevent children to work in coal mines, they

no longer had the freedom to enter contract on any terms

o Further died when it was realized that contracts are more vertical in nature. Eg the manufacture

probably knows more about a product than a reseller who probably knows more than a consumer.

There was an inequality of bargaining power. There need to be a level of protection. This is where

consumer protection laws came into effect. This inhibits some freedom of contract.

o The theory underpinning contract is the Will theory.

• Will Theory. There is no contract until there is a meeting of the minds:

o Both intended to contract on specific terms

o Great in theory but it didn’t work as it was too easy to get out of contract (any mistakes,

misunderstanding etc you can get out)

o This gave way to the objective theory of contract.

Objective theory of Contract

• Still governs Australian Contract law today

• Need a subjective meeting of the minds ideally

• To get there however you only take into account objective evidence. You are not concerned with what a

party thinks about any statement, you are concerned with:

How a reasonable person in the position of the parties would interpret that statement

• Two test can be applied:

1. Fly on the Wall Objectivity. There is a conversation then subsequently a dispute as to what was

meant. Get a totally detached third person looking down on the conversation and ask how would

they reasonably interpret those words. This isn’t what is actually applied. What is actually applied

is

How would a reasonable person in the position of the promisee have interpreted those

words?

i) A reasonable person is someone with a similar age, background, education. Takes on

some of the characteristics of the person in which the promise was addressed. It is not

a completely detached person.

• Things that inhibit freedom of contract (Not in exam)

o Capacity. The person does not have the capacity to enter a contract

o Illegality. Freedom to contract on some subject matter is illegal.

o Contract in Restraint of trade. E.g. the purchase of a business, I’ll buy the business as long as

X agree not to open a new business in the area for Y time. This is perfectly legal as long as the

limits are reasonable. You can’t stop someone making a living. This is difficult to determine

Contract formation Three requirements:

1. Parties must have reached an agreement

2. Agreement must be supported by valuable consideration

3. Intent to Contract

Each element overlaps, you need to consider as a whole

Agreements Three ways to prove an agreement:

Lecture 1: Contract Formation

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1. Sign on the dotted line – Easy (no further discussion required)

2. Conduct – The way you conduct yourself can show you have entered into an agreement (To be discussed

later)

3. Tools of offer and acceptance

Offer and Acceptance Offeror – The person making the offer.

Offeree – The person receiving the offer.

• If contract extends over a long period of time with multiple lines of communication, offer and acceptance

probably won’t work

• There are some contracts where even though there may be an offer and acceptance there is no contract.

E.g. sale of land.

• Courts will manipulate the rules if they give rise to a ridiculous result.

o Advertising is not an offer

What is an Offer? An expression of willingness to contract on certain terms without further negotiation1

• How do you work out if there is an offer? Apply the objective test. How would a reasonable person in the

position of the promisee interpret the statement?

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424

• Leading Australian case on the concepts of Offer

• Wool industry said there was a contract for the subsidy. Question for the HCA: Was there an offer made

by the government? No

o Government had no commercial interest, they were effecting government policy. A reasonable

person in the position of AWM would have known this. No intention to contract

o Examined the factors when someone makes an offer?

i) Did the government request you to buy wool from them? No, you can’t have an offer if

the government requests that you don’t do anything.

ii) Did the Government invite you to buy wool from them? No

Offer v Invitation to Treat

• ITT comes in two forms:

1. An expressed willingness to negotiate

2. Someone invites you to make an offer

• What is the difference between offer an ITT? Objective test:

How would a reasonable person in the position of the offeree interpret the statement

• Courts starting point is that the starting point of negotiations is an ITT. Whoever want to prove otherwise

bears the onus of proof

• There are some commonly reoccurring situations:

o Circulating Merchant Price Lists (Advertising). ITT. Commonsense. If something is on sale

and you order 100 000 they wouldn’t be able to supply it, you could then sue for breach of contract.

No one could run a business. You can however cross the line with advertising and become an offer

(Carboll).

o The mere reply to an inquiry is not an offer. ‘How much would you sell this for? $20. Sold!’. It has

to be serious.

1 Intention to contract is already in the definition of an offer, you can’t have an offer without an intention to contract

Lecture 1: Contract Formation

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o Auctions. Advertising the auction is an ITT. The offer is your bid, the acceptance is when the

hammer comes down. What if there is no reserve? What if there is no reserve, you make a bid but

the hammer does not fall? There is no contract as such because the hammer has not fallen

however, what you can now do is say that although the advertising was an ITT, buried within the

advertising, there was a further offer, an offer to sell to the highest bidder. This offer was accepted

when the person came along to bid for the goods. As soon as you are the highest bidder you have

a contract with the auctioneer, you now sue the auctioneer for breach of contract2. Look at all the

terms very carefully, there could be an offer buried somewhere.

o Tenders. A call for a tender is an ITT. The offer is when the contractors send in a quote. The

acceptance is when a winner is announced. The issue is putting a tender together can cost time

and money.

i) Process Contract. The call for tenders is an ITT. Within this however is an offer to

properly consider any tender received that satisfies the terms of the tender. If the terms

are satisfied and proper consideration is not given you may sue.

ii) Need to be careful e.g. if your criteria is you will award the contract to the lowest bidder,

people submit tenders saying I will do it for $50 less than the other guy

o Good on Display3.

PBS Position Boots Position (and court)

• The good on display is an offer, when I pick up the good and place them in the basket that is acceptance

• Good sitting on the shelf in a self-serve shop is an ITT. The offer is made by the customer when they present the goods to the cashier

• In this situation though aren’t you dictating the terms? Wouldn’t the shop want to dictate the terms?

Question. From boots, if the courts saying that this is a presumption of fact or does the language used by the

judges give rise to a presumption of law? If it is a presumption of law, you cannot rebut it

o An offer can be made to the entire world. Mount famous case Carlill v Carbolic Smoke Ball Co

[1893] 1 QB 256. The court focused on the words in the advertisement. ‘To show our sincerity’

was a willingness to contract on certain terms without negotiation.

i) Unilateral Contract – An offer in return for an act. We promise to pay you 100 pounds if

you use the equipment as instructed (Not if you promise to use it as instructed).

ii) Was there a commercial reason behind the advertising? If they are being sneaky to

make money then you could say there is a contract. The offer however must be

reasonable.

o In order for an offer to be binding it has to be communicated by you or an authorized agent.

Contract formation Questions Greg visited the local supermarket and took from the shelf a bottle of cleaning fluid. Immediately after he placed

the bottle in the trolley provided, it exploded, severely injuring him. He sued the supermarket alleging a breach

of contract. Advise Greg.

• Immediately you would think of boots because the events are similar, however boots is not the leading

case for offer.

• Start with the general, move to the specific.

• The question is: Do you have a contract?

o What do you need for a contract? Agreement, consideration, intention. Out of these, which is

in play in this instance? Agreement.

o In order to prove agreement what do you need?

Signed document or;

2 Barry v Davies [2001] 1 All ER 944 3 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401

Lecture 1: Contract Formation

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Conduct or;

Offer and acceptance

Which is relevant here? Offer and acceptance

o You need to determine if there is an offer. How do you do this? Refer to the leading Australian

case on offer. Australian Wollen mills (Don’t simply go to what is the most relevant case

simply on the facts (Boots))

o Always start with the highest authority on the principle of law that is in play and go from there

(You may very well get to boots but it is not the starting point)

You need to prove if there is an offer.

To do this you need to define an offer4.

What is the lead case on this5?

What does this tell you to look for? What interest do each of the parties have in creating

a contract (if any)? In this case the Australian Government had no commercial interest.

In this instance did the shop request Greg to do anything? Not really

Had they invited Greg to do anything? They are inviting you to buy

The HCA in Wollen Mills said one of the key indicators of an offer is whether they request

you do something or invite you to do something. They are inviting you to do something

here. But is this invitation in the form of an offer or an ITT? How do you draw this line?

Leading case on where an advertisement (ITT) crossed the line is Carbill. Is there

anything in the above situation where it appears the advertiser crossed the line? No

So, is it an offer or an ITT?

The presumption in Boots is good sitting on a shelf is an ITT. Is this a presumption of

fact or a presumption of law (Read Boots and decide yourself) lets just say fact so it is

rebuttable. Therefore is it rebutted in this instance? How would you know? Carbill.

Carbill is the authority for when an advertisement constitutes an offer.

Carbills shops you when an advertisement constitutes an offer. In that case there was

an offer because of a, b and c. In this instance there is neither so I think the better

conclusion is that there is not an offer

For any Question: o About Offer – Must refer Woolen Mills

o Advertising – Must refer Carbills and boots

Hint

• If you came to the conclusion that Boots raises a presumption of law (not rebuttable), state ‘assuming Im

wrong…..’ then go into the other

• Consider ALL RELEVANT arguments.

4 An expression of willingness to contract on certain terms without further negotiation 5 Australian Woolen mills

Lecture 2: Acceptance

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Lecture 2: The Fact of Agreement: Acceptance Aims and Objectives

At the end of this lecture students should understand the rules of acceptance, the duration of offers and the

concepts of certainty and completeness.

The Fact of Agreement: Acceptance

A. Acceptance generally

• Text: Radan & Gooley, Chapter 4 (paras 4.74-4.121)

• R v Clarke (1927) 40 CLR 227

• *Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216

• *Brinkibon v Stahag Stahl [1983] 2 AC 34

• *Bressan v Squires [1974] 2 NSWLR 460

B. (b) Alternatives to Offer & Acceptance

• Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965

C. (c) Termination of Offers

• Stevenson, Jacques and Co v McLean (1880) 5 QBD 346

• Dickinson v Dodds (1876) 2 Ch D 463

• *Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228

Certainty and Completeness

• Text: Radan & Gooley, Chapter 5

• Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600

• Whitlock v Brew (1968) 118 CLR 445

• United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177

• Masters v Cameron (1954) 91 CLR 353

• Meehan v Jones (1982) 149 CLR 571

Lecture 2: Acceptance

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Rules of Acceptance

• Communication.

o Must be communicated to offeror

o An offer can only be accepted to the person in which it is addressed

o The communication of acceptance has to be authorized. i.e from the offeree of from an

authorized representative

o It is possible to dispense with the need for communication – In the terms of their offer, the

offer may be set up in such a way that communication is not necessary. Carboll. The offer

was accepted by doing the act stated. The term of the offer negated the need for

communication.

It is possible to prescribe a method of acceptance. E.g. must be by telephone between

9-5.

You can further provide an exclusive method of acceptance. E.g. 9-5 on this number

only. A court would interpret this as non-exclusive, a court would accept another

method that is just as efficient e.g. just come to the office in those hours and say you

accept. Must say, ‘this offer may only be accepted by…… no other method of acceptance

is acceptable’ – you need to be very specific

o Silence is not acceptance1. Seller received the letter, instructed the auctioneer to remove the

horse, auctioneer made a mistake. Buyer tried to sell auctioneer in conversion2. To sell in

conversion, he needed to prove there was a contract for the sale of the horse (so he had

possessory title).

o Conduct may communicate acceptance. – e.g. not signing the contract but accepting all the

services and benefits. Even though you kept your mouth shut your conduct communicated

acceptance (if you had communicated to stop, this is different)

• Correspondence.

o Mirror image Rule - The acceptance must correspond with the offer. If you accept an offer,

you accept all the terms of the offer. Changing the terms is a counter offer, this kills the

original offer3. The idea is that a counter offer indicates an objection. A mere inquiry however

does not kill an offer. You can do tricky things:

I’m considering $1000 but in the meantime would you consider selling for $800 – This

isn’t a rejection, you’re thinking about it. There are two offers going on here.

Enquiry – Will you give me time to pay?

Battle of the Forms – A business usually has standard forms, usually they are skewed

to your benefit. Commonly, an offer is made on one form then accepted on another.

Leading case:

Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965. Parties

negotiating for the purchase of a machine, the machine must be manufactured. Seller

makes an offer on the sellers standard form, in it there was a price variation clause in

case the raw materials increase. Buyer accepts on its standard form (with no clause).

At the bottom was a tear off strip which said ‘If you agree, sign this and return’ which

the seller does. Dispute arises, English CCA examines:

1 Felthouse v Bindley (1862) EWHC CP J 35 2 To sell, you must have the title to the immediate possession of the goods 3 We offer $1000, no $800, No, OK $1000. No, the original offer has been killed. They must put the original offer back on the table

Lecture 2: Acceptance

16

(i) 2x Judges use Offer and Acceptance – Buyers submission of second form was

counter offer, tearing off the strip was acceptance. Buyer wins

(ii) Denning4 - He says you need to look at all interaction between parties to

determine the terms and conditions. Normally these situations are won by whoever

fires the last shot (in this case the buyer). There may however be a case where he

who fires the first shot wins. He doesn’t like shark practices (dodgy practices)

leading a reasonable person down a dodgy path. In this case however the seller

consciously sold and tore off the strip. Diplock has critisezed this judgement saying

he has asked the worn questions. The question before the court to be answered

was ‘Do these parties have a contract’? Denning assumed they did, he has spent

all his time answering what the terms were. This in itself has a weakness. You can’t

have a contract that has no terms, the formation and the terms happen

simultaneously. In reality, both parties thought they had a contract, the real

dispute was ‘what are the terms?’

(iii) Third approach – Between offer and Acceptance and the Denning Approach, if

the true dispute is ‘What are the terms’?:

(a) Examine both contracts, extract the common terms.

(b) Did either party specifically agree to another condition? If so add them

to the new document.

(c) Look at what you have left. Is this enough to form a contract? If so

then yes it is part of the condition.

o Standing Offer – An offer which may be accepted from time to time. Best example is a credit

card. A line of credit is offered on certain terms and conditions which is accepted when you

use the credit card

o Postal Acceptance Rule – Only applies to acceptance

If an offer is made, and I am going to accept by a letter of acceptance. Once the letter

is in an envelope with a stamp and a correct address, the moment it is placed in an

Australia post letter box, acceptance is made at that time and in that location

There will be a moment in time whether the offeror won’t know it has been accepted

(i.e. they are bound but they do not know)

When may this rule be used? Test for this is: Was a within reasonable comprehension

of the parties that the post may be used for acceptance? Starting presumption is that

if an offer is sent by post, you can accept by post (this can be rebutted). You cannot

use this:

(i) If the offeror excludes this – ‘You cannot accept by post’

(ii) Instantaneous modes of communication

(iii) If letter not correctly addressed (the address the offeror told you to address to)

and stamped

(iv) If the operation would create an absurd situation – e.g. sale of land. As soon as

contract are exchanged, at law, the seller is still the owner, in equity the buyer is

the owner. If anything happened to the land in equity it is buyers problem, the

seller however becomes a trustee of the property and has obligations imposed on

them

• Knowledge – On order to accept the offer you must have knowledge of the offer. In Australia you

must also act in pursuance of the offer. Leading case:

4 He dislikes offer and acceptance

Read Dennings Judgement !!

The real dispute is the terms, not the formation of the contract . This approach hasn’t

Why have this rule? At some point you simply have to make a decision when the acceptance comes i f

A contract is made at the point at which contract acceptance is effect ive. E.g. i f you are in NZ and make an offer from NZ, if you cal l Australia f rom the phone and I say ‘I accept’ the contract is taken to have formed in NZ (i t is heard in NZ). If however I accept the offer

Lecture 2: Acceptance

17

R v Clarke (1927) 40 CLR 227. Gov put out a reward for info on the reward for two police officers.

Clarke was about to be charge for the murder of one, just before being charged he gave evidence

which led to the conviction of someone. He then wanted the reward. He also admitted he gave

evidence to save his skin. When you examine the judgement:

i) Some judgements are based on the fact that Clarke gave evidence that he knew about

the reward but by the time he came to give evidence he forgot about the offer – he did

not have knowledge of the offer at the relevant time therefore you cannot accept,

therefore no contract

ii) Izaacs – Even considering the above, He does not get the reward as he was not acting

in pursuance of accepting the reward, he was doing this to save his skin. In order to get

to this point he had to distinguish an old English case Williams v Carwardine [1833]

EWHC KB J445.

iii) Prima Facie evidence of acceptance – You have knowledge of the offer, then you do

the act required for acceptance. This is considered prima facie acceptance. You don’t

need to prove in your mind you were acting in order to get the reward. Izaacs said yes

there is prima facie evidence, in Williams you had knowledge of the offer and your

motive was to ease your guilty conscious, it is possible to have both those thoughts.

You can also have many reasons for acting. Only one of these reasons need to be to

accept an offer. For Clarke, his motive was to save his skin, this overpowers all other

motives including motivation to accept reward, the motivation was too inconsistent with

the motivation to accept

• Duration – The offer can be revoked any time prior to acceptance BUT the revocation must be

communication.

o The revocation need not come from an authorized rep, as long as you hear, its revoked

o Leading Case Dickinson v Dodds (1876) 2 Ch D 463. ‘I will keep this offer open until

Friday’. Offeree heard from a third party that the offeror was negotiating with another. He

then rushed off and posted an acceptance. Too late. Question, is mere negotiation a

revocation? What are the specifics of this case that make the offerors actions acceptable for

revocation? Also note the words ‘I keep this offer open until….’ He can still revoke the offer

any time they want. You are not obliged to honour your words.

o N.b. There is a big difference between Dickinson and: ‘In return for $1 I will not revoke the

offer until next Thurs’. If 5c paid you cannot revoke as you have entered into an option

agreement. Whether the contract goes ahead depends on whether you accept the option. Also

acceptable is ‘I offer to sell X……. in return for you promising to pay me 5c I will keep this

offer open for…..’

o Revocation of a unilateral contract (An offer in return for an act – Carboll). What is the

act of acceptance? You must complete the act (not just attempt the act, nor partially

complete the act). Ultimately, courts have decided not to review this law, you don’t have a

remedy in contract (you may have in estoppel though)

• Rejection – You reject an offer, its dead

• Lapse – If the time period expires, the contract lapses. If there is no time provision, it is open for

acceptance after a reasonable period of time (look at all the facts to determine a reasonable period)

• Death – Offeror made to offeree:

5 Woman knew that a man was responsible for a murder yet she said nothing, he committed another crime, she finally reported him but admitted she did this to ‘ease her guilty conscious’. She still got the reward

Draw a dist inct ion between intention to accept and motive. Some motives just don’t si t easi ly with an intention to accept

A promise for a promise

Swim from Harbor Bridge to opera house, then revoke offer just before

Lecture 2: Acceptance

18

o Prior to acceptance offeree dies – Executor of the estate cannot accept, it is personal to the

offeree

o Prior to acceptance Offeror dies – As long as the offeree has not heard of the death, they can

still accept

Certainty and Completeness

• The definition has changed over time.

• Previously courts referred to a series of ‘essential terms’. Today the courts will say that it is up to the

parties to determine what the essential terms are. Courts basically take the position that if a contract is

placed before them the only time they will declare a contract void if it is so full of holes that they are

unable to determine what they are enforcing

• Uncertainty vs Ambiguity –

o Ambiguous - When it can have more than one meaning. When a court is placed in this situation,

they won’t declare it void, they will simply choose the meaning they think best suits the parties

intention6. Court will do what they can to find certainty.

o Uncertainty:

i) Starting point is they will look to find certainty rather than declare void.

ii) Techniques for resolution. Flow chart:

(1) External standards7 – The external standard must exist Whitlock v Brew

(1968) 118 CLR 445 Sale and leaseback. Sale of land with associated lease.

The condition of lease was ‘on such terms as normally governs such a lease’ this

couldn’t be enforced. To enforce a lease you need:

What is the property?

What is the rent?

What is the term of the lease?

Then, could this be fixed by the ‘external standards’? No, in this instance

it just didn’t exist. Might have more luck in say a big shopping Centre.

There is no ‘standard lease’ for something like this.

(2) Standard of Reasonableness – what language and sayings for a contract is

reasonable in that particular industry? Courts generally don’t let parties out of a

contract on a simple technicality. If the parties have happily completed part of

the contract, the courts are reluctant to let a party out on a technicality. You

have been working well, so continue to do so

o Imply a Term – A gap may be filled by implying a term e.g. Contract for the sale of goods. E.g.

for the sale of a simple thing like a pen, if you fail to specify a price, the court will imply a reasonable

market price. They will never do this for land though (and also maybe not second hand goods

as second hand goods are considered unique and take on a value of who owns it).

i) Won’t imply a term that is inconsistent with any of the intention of either of

the parties.

ii) Courts won’t enforce an agreement to agree ‘We agree to agree on a price’. You can’t

force someone to agree. You can’t imply a term here. Mayan Butcher v R [1934] 2

KB 17 N8. An agreement to agree to buy army surplus stuff. Can this be enforced? You

can’t enforce an agreement. This is contrasted in Foley v classic coaches contrasts

this 1934 2 KB Page 1. Agreement for the sale of a motor coach business on the condition

6 What gives the best commercial effect e.g. if given the option of X or Y the court won’t say Z, similarly, they won’t say I don’t know 7 It must have been agreed by both parties that the external standard forms part of the contract 8 Leading case on an agreement to agree

This is likely because previously, contract were quite simple and

Not popular because the reason for this is to resolve differences and promote

Lecture 2: Acceptance

19

that fuel is purchased from a certain petrol station. Is this enforceable? It is an

agreement to agree. Court enforced the contract. Why?

(1) The parties worked together well for several years. One party tried to get out on

a technicality.

(2) If this condition were not here, the sale price would probably be higher.

(3) If the contract came to court on the day it was signed it probably would not have

gotten up. Because the contract was in place for so long, the parties conduct

indicated certainty.

o Severance – If all else fails the court may sever the offending provision. The court will only do

this if both parties agree to this ‘Court if you can’t decide what this means, we both would agree

to sever the provision’. It’s pretty rare for this to happen. The court must however come to the

conclusion that both parties would have agreed to the severance of the term. Tried and failed in

Whitlock v Brew (1968) 118 CLR 445.

Three Clauses Are these clauses enforceable?

1. Agreements to Negotiate.

• An agreement to agree is not enforceable but is an agreement to negotiate? Yes under two conditions.

Usually when big companies agree on the big things but agree to negotiate on all the minor details. Coal

Cliffs Collieries Pty Ltd v Sijehama Pty Ltd (1991) NSWLR 1.9 Contract to exploit a mining lease.

Agree to the major terms and agreed to negotiate on other terms as the intent was to create a large joint

venture.

o Handley. You cannot enforce an agreement to negotiate. This is worse that an ‘agreement to agree’

What’s the point? A negotiating agreement can be stonewalling? This is unenforceable

o Kirby & Waddell. This is a commercial agreement, this is how these people deal with this so you

need to give the contract so we need to give this some kind of effect. At the same time, the concern

is if this is upheld, if negotiations breakdown again, they will simply come back and ask for

judgement. The court doesn’t have the expertise to decide on a mining lease. Kirby would uphold

the requirement to negotiate subject to two conditions

1. Negotiations are well advanced

2. There has to be a dispute resolution mechanism in the contract should negotiations

breakdown as the court is not able to resolve the difference.

o Neither of these were present so the action was not enforceable

o What would have happened if the contract was a lot simpler than a mining license? Would Kirby

have upheld the requirement to negotiate?

• Most contract where you are required to do something there is a standard that you must perform X to

2. Subject to Contract.

• Masters v Cameron (1954) 91 CLR 353.10 Sale of a large rural property. HCA said when STC is written

it can mean one of three things and what is the presumed intention of the parties will depend on what

category it falls into. The category depends on the construction of the contract:

1. We intend to be immediately bound – and you must immediately perform to your contract.

Eventually you will get around to writing down all the minor details

9 The agreement was to negotiate ‘In good faith’ This is very different to simply agreeing to negotiate 10 Leading case

Would Kirby have required these two condit ions if the terms were very simple? Do you rea l ly need a dispute

Outside of land there is no

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