lpab - contract - winter 2017 - weekend 1 - session 1 2017/lpab... · – australian woollen mills...

1

LAW OF CONTRACT

LPAB – Winter 2017

Weekend School 1Session 1

2

LAW OF CONTRACT


Week 1

3

©A.Kuklik

Lecture 1• House Keeping

– Course description and objectives

– Classes

– Assessment

– Text and materials

• Course introduction

– What is a contract? – The definition of contract

– Types of contracts

– The role of contracts

– Sources of contract law

– How do contracts ‘fit in’ with other areas of law

– Freedom of contract:

• Capacity – Who can enter into a contract?

• Illegality and restraints of trade

4

©A.Kuklik

Lecture 1Formation of contract

• The Fact of Agreement: Offer

– R&G, Chapter 4 (paras 4.1-4.73)

– Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

– Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

– Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)[1953] 1 QB 401 (R&G(C)[4.3])

– *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

– *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

5

©A.Kuklik

Course Description• The law relating to contracts is one of the pillars of the common law system. An

understanding of the basic elements of contract law is thus a critical pre-requisite for the study of a number of later subjects, including Conveyancing, Commercial Transactions and Industrial Law. The course aims to provide students with an understanding of the basic principles of contract law which apply to nearly all contracts. In fulfilling this aim, the course focuses primarily on a study of relevant case law and statute law. The course covers the elements of formation of contracts, terms of a contract, matters affecting consent to a contract, discharge of contracts, remedies, and third party rights.

• Special principles that apply to specific types of contracts are dealt with in later courses.

The objectives of the course are:

(a) to provide students with an understanding of basic principles of contract law; and

(b) to develop in students an ability to analyse fact situations and correctly identify the relevant principles of contract law that are applicable to the resolution of problems raised by particular factual situations.

6

©A.Kuklik

Lectures, Assessment, Texts• Lectures

– See course outline p4

– Weekend schools 1 and 2 – see course outline pp5-6

• Assessment

– See course outline p1-2

• Assignment: 20%

• Exam: 80%

• Reading, texts and materials

– See course outline p3

• Radan, Gooley & Vickovich, Principles of Australian Contract Law, 3rd ed. LexisNexis, 2013 (R&G)

• Radan, Gooley & Vickovich, Principles of Australian Contract Law, Cases and Materials, 3rd ed. LexisNexis, 2014 (R&G(C))

7

©A.Kuklik

Lectures, Assessment, Texts

• Reading, texts and materials

– See course outline p3:

• You are only required to know the cases in the outline for the exam. Additional cases are presented to broaden your knowledge of the law and to clarify the underlying principles. But

8

©A.Kuklik

Lectures, Assessment, Texts• Tips on how to study this course

– This course is heavily based upon common principles as opposed to statutes. Therefore reading the cases and thinking about the cases is essential. The principles that you will need to apply are contained in these decisions. You will also need to be able to distinguish the facts in these cases from those in the problems.

– The assessment will largely be problem based:

Using: I.R.A.C: http://sydney.edu.au/law/learning_teaching/legal_writing/problem_questions.shtml

Using: M.I.R.A.T: http://www.law.unsw.edu.au/current-students/surviving-thriving/hitting-books/exam-preparation

9

©A.Kuklik

Introduction

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

10

©A.Kuklik

IntroductionThe definition of contract

• The word contract comes from the Latin “contrahare” which means ‘to draw together’

• Definitions of contract fall into two types:

– Those that see it in terms of a promise or promises

– Those that see it in terms of agreement

• Both of these types of definition have problems

• Pollock defined a contract as “a promise or set of promises which the law will enforce.”

11

©A.Kuklik


• However, this definition is not without problems:

– The implication that the only promises that can be enforced are those contained in the contract. This clearly is not the case.

• For example, a promise outside the scope of a contract can be enforced pursuant to the principles of equitable estoppel (week 4) or those of misleading or deceptive conduct (week 7).

• Also, an oral promise, made in the context of a sale of land, can give rise to a valid contract, but the promise will be unenforceable due to the lack of writing evidencing the promise (week 4).

– Widodo v Hamdan [2008] WASCA 113

12

©A.Kuklik


• The second type of definition sees contract in terms of an agreement. Treitelstates that “[a] contract is an agreement giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties.”

• This definition also has problems:

– First, a contract can exist in the absence of actual agreement between the parties, because the law takes an objective rather than subjective view of the facts when assessing whether an agreement exists. A court will look at what the parties have said and done rather than what they actually think when determining whether an agreement exists.

– Second, not all agreements giving rise to obligations are contracts. Unless the agreement is intended by the parties to be legally binding, a contract does not exist (week 4).

13

©A.Kuklik

IntroductionTypes of contract

• One form of contract is called a unilateral contract – where the offeror makes a promise in exchange for some act (say, payment of money for a service).

• This is contrasted with a bilateral contracts in which two parties exchange promises to do things.

• In a unilateral contract, the offeror is bound when the act is performed, but the offeree cannot be forced to act. In a bilateral contract, both parties can be forced to act – i.e. to fulfil their promises.

14

©A.Kuklik

IntroductionTypes of contract

• Examples of bilateral contracts are present in everyday life. You enter this type ofagreement every time you make a purchase at a store, order a meal at arestaurant, or receive treatment from a doctor In each circumstance, you'vepromised a certain action to another person or party in response to that person orparty's action.

• There are examples of unilateral contracts in everyday life as well: one of the mostcommon is a reward contract. For example if you have lost your dog. You place anadvertisement in the newspaper or online offering a $100 reward to the personwho returns your missing dog. By offering the reward, you're offering a unilateralcontract. You promise to pay should anyone fulfil the obligation of returning yourdog. You're the only person who has taken any action in this contract, as no one isspecifically responsible or obligated to finding your dog passed on this interaction.

• Another common example of a unilateral contract is with insurance contracts. Theinsurance company promises it will pay the insured person a specific amount ofmoney in case a certain event happens. If the event doesn't happen, the companywon't have to pay.

15

©A.Kuklik

IntroductionThe law of contract

• The law of contract is concerned with four main topics:

(1) the making of the contract;

(2) the content, effect and enforceability of the terms of the contract

(3) the performance and discharge of the contract; and

(4) rights and remedies in the event of default in the performance of the contract.

• More simply, the law of contract is concerned with the formation and enforcement of agreements which are recognised as contractual in nature.

16

©A.Kuklik

IntroductionSources of contract law

• In Australia, contract law is largely governed by the common law, developed domestically, and inherited from England, with some legislative additions:

– Australian Consumer Law (as a Schedule to the Competition and Consume Act 2010 (Cth))Sale of Goods Act 1923 (NSW)

– Contracts Review Act 1980 (NSW)

– Civil Liability Act 2002, (NSW)

• Is there a flavour to Australian contract law? – See Carter [1-17]

17

©A.Kuklik

IntroductionThe role of contracts

• According to Friedman, contract functions as a legal instrument for the freecirculation of goods and labour, thereby signalling the movement away fromsocieties characterized by status and immobility.

• First, it is widely accepted that contract law aims to facilitate exchange.Indeed, as Lord Irvine has put it, the commercial law of contract serves as anengine for trade. Exchange is not normally compulsory; but, for those whowish to exchange, contract law attempts to put in place a secured frameworkthat facilitates dealing with a degree of confidence and trust. Contract law laysdown the transactional ground rules; contractors know where they stand;whether parties deal with friends or strangers, at home or away, they trade inthe shadow of the sanctioning apparatus of the law. To this extent, contractlaw channels parties towards performance.

18

©A.Kuklik

IntroductionThe role of contracts

• Secondly, it is recognized that contract law has a protective function. At onelevel, this function is relatively uncontroversial, the idea being that contractlaw must be compatible with the public interest in general. Thus, parties mustnot be encouraged or permitted to draw on the sanctioning apparatus ofcontract law where their agreement is illegal or, in some other sense, isantithetical to the public interest. More controversial however, it is arguablethat the intent underlying much of the modern law is to protect parties who arerelatively vulnerable. Certainly it is widely agreed that one of the distinctivefunctions of the modern law of contract is to put in place a protective regimefor routine consumer dealing.

• Thirdly, where contracts give rise to disputes, it is accepted that one of theobjectives of contract law is to put in place machinery for the resolution ofsuch disputes.

19

©A.Kuklik

IntroductionThe life of a contract

• Negotiation?

• Formation

• Execution

• Completion

20

©A.Kuklik

Formation

Formation of contract

21

©A.Kuklik

Formation


• Formation of contract is classically concerned with a number of elements or issues:

– Offer

– Acceptance

– Certainty and completeness

– Consideration

– Intention to create legal relations

– The requirement of writing

– Capacity (not assessed)

– Legality (not assessed)

• Generally a contract has to conform with all of the above rules to be valid

22

©A.Kuklik

FormationFreedom of contract

• Capacity – Who can enter into a contract?

• Illegality and restraints of trade

23

©A.Kuklik

FormationCapacity – Who can enter into a contract? (not assessed)

• For a contract to exist the parties must have contractual capacity. There are certain persons and classes of persons that lack the capacity to enter into a contract with the consequence (normally) that resulting contracts will not be enforceable against them. Lack of capacity now often stems form a fear of vulnerability to exploitation. This area has become more complex as a result of statutory developments at a state level (calls for national law reform have not yet met with success) which result in a variety of different rules.

• Mental disorder – contracts with the insane are void. Can be held to contract for ‘necessities’

• Intoxication

• Bankrupts – limits ability to contract

• The Crown

• Minors (at CL 21; but under legislation 18). Can contract for ‘necessities’

• Companies – legislation gives the company power to contract

24

©A.Kuklik


Mental disorder

• A contract is voidable at the option of a party who, as a result of mental disorder, is unable to understand the nature of the contract being made -provided that the other party knew, or ought to have known, of that person’s disability. The party seeking to withdraw from the contract has the onus of proving both these requirements:

(a) that they were suffering from such a disability and

(b) that the other party was - or ought to have been - aware of it.

25

©A.Kuklik


Intoxication

• A contract is voidable at the option of a party who, as a result of intoxication, is unable to understand the nature of the contract being made - provided that the other party knew, or ought to have known, of that person’s disability. The party seeking to withdraw from the contract has the onus of proving both these requirements.

Bankrupts

• A bankrupt person may make a contract but unprofitable contracts made prior to bankruptcy may be disclaimed by the trustee. Legislation may also restrict the nature of contracts a bankrupt person may enter into (for example, the extent of credit they may obtain) and makes entering into some types of contract without disclosure of bankruptcy an offence

26

©A.Kuklik


The Crown

At common law proceedings could not be taken against the Crown, but legislation has removed this immunity in most cases. Key limitations include:

• the power of the Crown to contract may be restricted by statute

• Crown is not permitted to fetter the future exercise of its discretionary powers

• A parliamentary appropriation is needed to pay damages

Minors

• Both the common law and statute operate to restrict the capacity of minors to contract. The existing mix of common law and multiple different state legislative rules in relation to the capacity of minors has rendered the assessment of the contractual capacity of minors exceedingly complex.

27

©A.Kuklik


Companies

• At common law a company only had contractual capacity to the extent it was given such capacity by its constitution – parties to a contract with the company were taken to have been aware of any restrictions contained in the constitution.

• Section 124 of the Corporations Act 2001 (Cth) gives a company the same legal capacity as ‘an individual’ including the power to make an agreement and s 125 effectively provides that the performance of an act – including entry into an agreement – by a company will not be invalid merely because it is beyond the power of the company’s constitution.

28

©A.Kuklik

FormationIllegality and public policy (not assessed)

• Illegality is a highly complex area of contract law. It deals with both criminal conduct, conduct prohibited by statute (even if not criminal) and conduct regarded as contrary to public policy.

• In some cases it will be simple to determine whether or not an illegal contract exists and will be rendered void; for example, a contract whereby A agrees to pay B $1m if B kills C will be clearly be considered illegal and void. In other cases it will be more difficult. For example, will a transport contract be rendered illegal if the car used in the transport speeds while on its journey? In some cases a contract tainted by incidental illegality might be considered unenforceable rather than void so that proprietary interests might pass notwithstanding the unlawful conduct.

• Statutory illegality - this encompasses contracts directly prohibited by statute (e.g., cartel contracts), contracts entered into for an illegal purpose (e.g., to kill), contracts performed illegality (e.g., speeding whilst driving in the course of performing a contract) and contracts otherwise made void by statute (e.g., certain unfair terms in consumer contracts). Different rules and consequences attach to each.

29

©A.Kuklik

FormationIllegality and public policy (not assessed)

• Common law illegality and contracts which are contrary to public policy - this encompasses a broader range of conduct, including contracts prejudicial to the administration of justice, contracts promoting corruption in public life, contracts prejudicing the status of marriage, contracts promoting sexual immorality and contracts in restraint of trade. It is not always easy to classify these types of contract and what constitutes conduct that is contrary to 'public policy' varies with the prevailing morality of the relevant jurisdiction.

• Where conduct is classified as illegal or contrary to public policy it is generally held to be unenforceable; there are, however, some exceptions to that rule and, in some cases, it may be possible to sever the offending terms and enforce the remainder of the contract.

30

©A.Kuklik

Offer




– Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])


– Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

– *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

– *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

31

©A.Kuklik

Offer


• The Fact of Agreement: Offer and Acceptance

• In cases where the existence of an agreement is in question, the traditionalresolving method for it is to apply the rules of offer and acceptance.

• One looks at the negotiations between the parties and seeks to establish whetherone of them has made an offer to the other and whether the latter hassubsequently accepted the offer (we will discuss acceptance next week).

• However, in many cases, whether an agreement exists will not be in dispute.Thus, if A and B execute a detailed document prepared by their lawyers, the factof agreement will rarely be disputed by either of them. Nor will it be realistic to talkof such an agreement as being the product of one of them making an offer, whichthe other accepted.

32

©A.Kuklik

OfferFormation of contract


• Offer and acceptance analysis will work reasonably well in situations where therehave been negotiations between A and B which involve communications betweenthem that have reached a point where one of them claims an agreement has beenreached and the other disputes this. In such cases one simply goes through thecommunications in chronological order in search of an offer, followed by anacceptance of that offer. unless both an offer and acceptance are found to haveoccurred, there is no agreement.

• Principles of offer and acceptance help us determine:

– When a contract was entered into. This can be important if there are time limits on performance.

– Where a contract was entered into. This can be important if there is a dispute as to which jurisdiction governs a contract.

33

©A.Kuklik



• Whether an agreement has been entered into is determined objectively (asopposed to subjectively):

“The general principles are not in doubt. Whether there was a binding contractbetween the parties and if so, upon what terms depends upon what they haveagreed. It depends not upon their subjective state of mind, but upon aconsideration of what was communicated between them by words or conduct, andwhether that leads objectively to a conclusion that they intended to create legalrelations and had agreed upon all the terms which they regarded or the lawrequires as essential for the formation of legally binding relations.”

– RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Company KG (UK Productions) [2010] 3 All ER 1

34

©A.Kuklik



• So what is an offer?

'An offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive.‘

– Nielsen v Dysart Timbers Limited [2009] 3 NZLR 160 at 168.

• In determining whether an offer has been made 'the correct approach is to ask whether [the offeree] (having the knowledge of the relevant circumstances which [the offeree] had), acting reasonably would understand that [the offeror] was making a proposal to which he intended to be bound in the event of an unequivocal acceptance‘

– Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd (20l0) EWCA Civ 1331 at [25]

35

©A.Kuklik



• For a valid offer to exist, it must be communicated to the offeree, or his or her agent, by the offeror or his or her agent. If the offeree learns of the offer from an unauthorised person, there is no offer for that offeree to accept: *Banks v Williams (1912) 12 SR (NSW) 382 at 390-l. Once the offer is communicated to the offeree, he or she has the power to turn it in to an agreement by accepting it.

• What is central to an offer is the will or intent of the offeror to be bound in contract by the terms of the offer. A statement that lacks such will or intent is not an offer.

• In some situations such a statement will simply be:

– the supply of information

– an invitation to treat

36

©A.Kuklik


• The Fact of Agreement: Offer v Invitation to treat

• Carter defines an invitation to treat as 'a request to others to make offers or to engage in negotiations with a sale in mind'.

“[In cases] in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let ... there is no offer to be bound by any contract. Such advertisements are offers to negotiate - offers to receive offers - offers to chaffer, as, I think, some learned judge in one of the cases has said.”


• So if it is an invitation to treat, it is not an offer capable of acceptance and therefore there is no contract.

37

©A.Kuklik



• So when is it an invitation to treat?

• In many cases the issue that will resolve a dispute between persons involved in litigation before the courts is whether a statement made by one to the other is an offer or an invitation to treat.

• See Gibson v Manchester City Council [979] 1 All ER 972 contrasted with Storer v Manchester City Council [1974] 3 All ER 824 both cases where council, resolved to allow tenants of council housing to buy their properties. The council sent a letter to in which it stated that it “may be prepared” to sell to the premises that the tenant was leasing from the council. The letter stipulated the price and terms and conditions upon which a sale would take place. The letter then invited the tenant “to make a formal application to buy” by completing the enclosed application form.

• Did this constitute and offer or an invitation to treat?

38

©A.Kuklik



• ln Harvey v Facey [1893] AC 552, Harvey telegraphed to Facey saying: “Will you sell us Bumper Hall Pen?”

• Facey replied: “Lowest price for Bumper Hall Pen, £900.”

• Harvey replied that he agreed to buy the property for £ 900 and asked that the title deeds be forwarded to him. Facey refused, claiming there was no contract of sale. The question before the court was whether Facey’s reply was an offer or simply the supply of information.

• The House of Lords ruled in favour of Facey saying the reply was merely the supply of information: “the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at the lowest price.”

39

©A.Kuklik



• Harvey v Facey is indicative of the view that where property, such as land, is of considerable value, the mere statement of price at which a person is prepared to sell, is usually not an offer. However, in Pattison v Mann (1975) 13 SASR 34 the Court conceded that such a statement could be an offer in some cases, but went on to say that very often the absence of reference to matters which one would normally expect to be the subject of negotiations is a strong indication that no concluded agreement has been reached by a purported acceptance of such a statement.

40

©A.Kuklik

Offer

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

• In June 1946 the Commonwealth Government announced a subsidy scheme to maintain the price structure of wool in the wake of the Second World War. It said that it would pay a subsidy to manufacturers of wool who purchased and used that wool for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.

• The plaintiff argued that a contract had been formed by the offer of a subsidy by the Government that offer being accepted by the doing of an act by the plaintiff, that is, buying the wool.

41

©A.Kuklik

OfferAustralian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

Held:

• There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. The Court stated that in cases such as this:

‘A test which is not seldom implied in such cases in order to determine whether a contract has been made or not is to ask whether there has been a request by the alleged promisor that the promisee shall do the act on which the latter relies. Such a request may, of course, be expressed or impliedX We are really applying the same test if we ask whether the offer was made in order to induce the doing of the actX’

• One has to look at the context in which the documents arose - they cannot be seen as a standing offer - capable of acceptance by the act of purchase. The subsidy was not a request, invitation or an inducement to purchase wool. There was nothing to suggest that the subsidy and purchase of wool were related, no quid pro quo.

42

©A.Kuklik


• There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act. The doing of the act must be based upon the promise - not merely coinciding with it. E.g., if A says to B "I will pay you $100 on your arrival in Sydney" B could not necessarily enforce the promise on arrival. It may be that B was planning to go to Sydney anyway and did not act in response to the offer.

• Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’

• There was no request or invitation to purchase wool

43

©A.Kuklik


• The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry. In this respect the Court noted that ‘It is of the essence of contract X that there is a voluntary assumption of a legally enforceable duty. X it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. X’

44

©A.Kuklik


• The Court criticised the use of the word unilateral in respect of this type of contracting, but commented that the alleged contract here was of the promise for an act type of contract.

• Appeal to the Privy Council was dismissed.

• [NB. To what extent was the historical situation (a Government trying to cope with economic difficulties in the aftermath of war) relevant to the decision in this case?]

45

©A.Kuklik



• What about unusual situations that are not strictly letters which say “I offer>.” ?How can you tell if they are offers or merely invitations to treat?

– Promotional material/advertisements: Carlill v Carbolic Smoke Ball Co [1893] 1QB 256 (R&G(C)[4.2])

– Self service at shops: Pharmaceutical Society of Great Britain v Boots CashChemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

– Auctions: *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

– Tenders: *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195(R&G(C)[4.5].

– Standing offers

46

©A.Kuklik

OfferPromotional materials

• The general rule is that circulars catalogues and advertisements setting out price lists or promoting the same of products are invitations to treat.

• However, the general rule will not apply if it is clear from the advertisement of circular that the seller is limiting her liability to the amount of stock on hand.

• In Spencer v Harding (1870) LR 5 CP 561 a circular stating “We are instructed to offer to trade for saleX” goods, was held to be an invitation to treat.

• In Leftowitz v Minneapolis Surplus Store 86 NW 2d 689 (1957), the store placed a newspaper which read: “l Black Lapin Stole . . . Beautiful, worth $139.50 . . . $1.00 First come first served.” Lefkowitz was the first to present, but the store refused to sell it to him on the basis of a house rule that the advertisement could only be taken up by women. Lefkowitz sued the store for damages for breach contract.

47

©A.Kuklik


• “[W]here the offer is clear definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract. ... [A] newspaper advertisement relating to the purchase and sale of [a product] may constitute an offer, acceptance of which will consummate a contract and create an obligation in the offeror to perform according to the terms of the published offer. Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances. . . . We are of the view on the facts before us that the offer by the [Great Minneapolis Surplus Store] of the sale of the Lapin fur was clear, definite, and explicit, and left nothing open negotiation.”

48

©A.Kuklik


• The rationale is often argued that if these ads constituted an offer rather than advertising, then the vendors obligation to provide stock at the advertised price could be limitless and they could be sued for breach when they ran out of stock. So the intention was not there to make this an offer.

• This gives rise to the argument that when the advertisement limits the stock to be sold, this is an indicator that the advertisement is an offer – because it is limited in its nature. But this will also depend upon the other facts as well.

49

©A.Kuklik


Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

• The Carbolic Smoke Ball Co. made a product called the "smoke ball". It claimed to be a cure for influenza and a number of other diseases, in the context of the 1889–1890 flu pandemic. The smoke ball was a rubber ball with a tube attached. It was filled with carbolic acid (or phenol). The tube would be inserted into a user's nose and squeezed at the bottom to release the vapours. The nose would run, ostensibly flushing out viral infections.

• The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13, 1891, claiming that it would pay £100 to anyone who got sick with influenza after using its product according to the instructions provided with it.

50

©A.Kuklik


51

©A.Kuklik



£100[1] reward will be paid by the Carbolic Smoke Ball Company to any person who

contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after

having used the ball three times daily for two weeks, according to the printed directions

supplied with each ball.

£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as

preventives against this disease, and in no ascertained case was the disease contracted by those

using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy in

the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address:

“Carbolic Smoke Ball Company”, 27, Princes Street, Hanover Square, London.

52

©A.Kuklik



• Mrs Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used it three times daily for nearly two months until she contracted the flu on 17 January 1892.

• She claimed £100 from the Carbolic Smoke Ball Company. They ignored two letters from her husband, a solicitor. On a third request for her reward, they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball's efficacy, but "to protect themselves against all fraudulent claims", they would need her to come to their office to use the ball each day and be checked by the secretary.

• Mrs Carlill sued in contract. She argued that the advertisement and her reliance on it was a contract between the company and her, so they ought to pay. The company argued it was not a serious contract. The issues that arose included: whether the advertisement was an offer, whether it had ben accepted and whether there was consideration.

53

©A.Kuklik



Held: There was an agreement and the defendant had to pay the reward

Bowen LJ:

• The necessary will or intention to make the advertisement an offer rather than “a mere puff” was to be found in the fact that the company had set up a special bank account to meet possible claims as a sign of its sincerity in the matter.

• It was only necessary for the person to the offer was made to follow the indicated method of acceptance – if the offeror indicates or implies that it will be sufficient to act on the proposal without communicating acceptance, performance of the condition is sufficient acceptance.

54

©A.Kuklik



1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a mere sales puff.

2. It is quite possible to make an offer to the world.

3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance.

4. Whilst there may be some ambiguity in the wording, this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls.

5. The defendants would have value in people using the balls even if they had not been purchased by them directly.

55

©A.Kuklik



• But what if there was no bank account?

• Carter argues that the result may not have differed [3-08] because the public may have still understood it to be an offer (and the Court may have held that the public would so understand).

• So how would this be distinguished from ordinary situations?

56

©A.Kuklik

OfferDisplays of goods/self-service stores

57

©A.Kuklik


• Generally, a display of priced goods in a shop, or in a shop window is an invitation to treat. The customer makes an offer which retailer either accepts or rejects. A significant authority on this point is Pharmaceutical society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401.

58

©A.Kuklik


Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

• Section 18 of the Pharmacy and Poisons Act 1933 (UK) stipulated that certain drugs could only be sold to members of the public if the sale was “effected by or under the supervision of, a registered pharmacist.” Boots Cash Chemists operated a self-service pharmacy. When one of its customers selected to purchase drugs covered by the legislation, they proceeded to a checkout desk where a registered pharmacist handled the transaction. The registered pharmacist was also authorised by the pharmacy to prevent any person from removing any drugs from the premises. The Pharmaceutical Society brought an action against Boots Cash Chemists claiming that this method of selling the drugs breached s 18.

59

©A.Kuklik



• In determining whether the legislation was breached, the Court of Appeal focused on whether the display of drugs was an offer or an invitation to treat. The Court ruled that the display was an invitation to treat, with the consequence that the customer made an offer at the time he or she presented at the checkout counter as willing to buy the relevant drugs. A registered pharmacist then accepted the offer.

• In such circumstances, the contract was entered into under the supervision of a registered pharmacist and thus there was compliance with the legislation.

• Therefore the principle adopted is that no offer is made by the display of the goods

60

©A.Kuklik



Somervell LJ noted that in relation to:

"an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed."

• Were it otherwise, “once an article has been placed in the receptacle the customer himself is bound and he would have no right without paying for the first article to substitute an article which he saw later of the same kind and which he perhaps preferred.”

61

©A.Kuklik



• This alternate reasoning has been criticised. Because if the shopkeeper was the offeror (making the offer by displaying the goods), wouldn’t acceptance take place when the goods are presented for purchase at the counter, rather than when they are put in the basket?

• Is this rule realistic in big stores where it is not the owner deciding whether to accept the offer to purchase? Does a junior sales clerk have the power to accept and enter in to the contract?

• Would it make a difference if there was not legislation involved in this case?

62

©A.Kuklik


• Nevertheless, the principle in this case has not prevented a display from occasionally being held to constitute an offer:

– In Chapleton v Barry Urban District Council [1940] 1 KB 532, a pile of deck chairs was attached next to a sign advertising the hire of deck chairs for 2d. For 3 hours followed by a request to obtain tickets for the chairs from an attendant and that the tickets had to be kept for inspection.

– Although this case was largely about whether the terms on the back of the ticket were included in the contract (we will deal with ticket cases shortly), Slesser LJ held that the ‘display’ and sign put up by the defendant was an offer which could be accepted by taking a chair and a ticket. He said the offer was: ‘We offer to provide you with a chair and if you accept that offer and sit in the chair, you will have to pay for that privilege 2d. per session of 3 hours.’

• How is this different to Boots?

63

©A.Kuklik

OfferAuctions

64

©A.Kuklik

OfferAuctions

• It is well established that when an auctioneer put up an item for sale, she is not making an offer to sell to the highest bidder, but inviting offers from the bidder.

• By making a bid, the bidders are making an offer, which is accepted by the auctioneer when the hammer falls – “Every bidding is no more than an offer on one side, which is not binding on the other side till it is assented to.”

– Payne v Cave (1789) 100 ER 502

• This is reinforced by the Sale of Goods Act 1923 (NSW), s 60.

• This means that the auctioneer does not have to accept the highest bid or any bid, unless the auctioneer has stated that she will do so.

– AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454

• It also means that a bid can be retracted before the hammer falls.

65

©A.Kuklik

OfferAuctions

• BUT, in the case of an auction without a reserve, the UK Court of Appeal has held in Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4]), that the highest bidder in an auction without reserve had a contractual claim against the auctioneer who did not accept his bid!

66

©A.Kuklik

OfferAuctions

*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

• Davies, trading as an auctioneer, conducted an auction of a couple of machines, each worth over £14,000. The auction was conducted without a reserve price.

• After unsuccessfully seeking bids (£3,000 to £5,000), the auctioneer, then asked for bids for the machines. The only bid was made by Barry who offered £200 for each machine. The auctioneer refused to accept the bids.

• The machines were subsequently sold for £700 each. Barry successfully sued the auctioneer (not the vendor!) for damages for breach of contract on the basis that, as the highest bidder, he was entitled to purchase the two machines for £400. The auctioneer appealed.

67

©A.Kuklik

OfferAuctions


Held

• The court upheld the trial judge’s decision that the auctioneer was liable.

• They approved the dicta of the earlier decision of Warlow v Harrison where it was held that although there is no contract between the vendor and the buyer, the auctioneer becomes liable to the highest bidder for damages for breach of contract.

“We cannot distinguish the case of an auctioneer putting up property for sale upon such a condition from the case of the loser of property offering a reward, or that of a railway company publishing a time table stating the times when, and the places to which, the trains run. It has been decided that the person giving the information advertised for, or a passenger taking a ticket, may sue as upon a contract with himX

68

©A.Kuklik

OfferAuctions


XUpon the same principle, it seems to us that the highest bona fide bidder at an auction may sue the auctioneer as upon a contract that the sale shall be without reserve. We think the auctioneer who puts the property up for sale upon such a condition pledges himself that the sale shall be without reserve; or, in other words, contracts that it shall be so; and that this contract is made with the highest bona fide bidder; and, in case of a breach of it, that he has a right of action against the auctioneer.”

• Here it was held that the auctioneer was liable for breach of contract.

• But what is the consideration for the auctioneer’s promise to sell the property? (i.e. what does the bidder give the auctioneer – as opposed to the seller?) What is the bidder giving up in return for the promise? The Court said that it was the detriment suffered by the bidder because his bid can be accepted unless withdrawn.

69

©A.Kuklik

OfferAuctions


• Also, if the bid was revocable, what does that say about an agreement with the auctioneer. Is that really consideration?

• Also, if this is accepted as Australian law, what does that say about an auction with a reserve, once the bids have reached the reserve? Does the auctioneer have to accept them?

• So is Barry v Davies good law here?

– This case has been criticised, but not overruled, and the reasoning in Warlowv Harrison (which Barry v Davies approved) has been applied in Victoria in Ulbrick v Laidlaw [1924] VLR 274.

70

©A.Kuklik

OfferTenders

71

©A.Kuklik

OfferTenders

• Tenders are a little similar to auctions, but a key difference is that in most tenders, each bidder makes only one bid, and with knowledge of the other tenderers.

• Therefore in a tender, it is the tenderer (the party who submits a tender) not the person calling for tenders (the invitor) who makes the offer. Once the tender is made, the invitor can choose to accept or reject the tender.

– Spencer v Harding (1870) LR 5 CP 561; Meudell v Harvella Investments v Mayor of Bendigo (1900) 26 VLR 158 (although in the latter case, the tender explicitly reserved the right to refuse tenders).

• This issue rarely arises, because most tender documents contain a clause giving the invitor a right of refusal in relation to all tenders.

72

©A.Kuklik

OfferTenders

• In a normal tender, the invitor can accept or reject any tender.

• BUT if she has said that she will accept the best tender, she must do so and a contract arises with the best tenderer.

• Spencer v Harding (1870) LR 5 CP 561

• An exception to the general rule regarding tenders is ‘process contracts’. A process contract arises in certain circumstances where an invitation to tender creates a promise to go engage in the process of evaluating (but not necessarily accepting one or other) all the tenders, and the tender is the acceptance of that offer.

73

©A.Kuklik

OfferTenders

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

• The council, which owned an airport, called for tenders to operate pleasure flightsfrom the airport. Blackpool & Fylde Aero Club (the club) was the existing operatorwhose contract was coming to an end. It was also one of the closed group ofseven people invited to tender for a new contract. The invitation to tender wasdetailed and specific in the procedure for, and form of, the submission of tenders.The reason for this was that the council wanted to ensure that the committeeconsidering the tenders was not in a position to know which tender had beensubmitted by which tenderer.

• One of the clauses in the call for tenders stated that “[n]o tender which is receivedafter the last date and time specified shall be admitted for consideration.” The clubsubmitted its tender on time and in accordance with the required procedure andform. However, due to an administrative error by the council, the tender was notconsidered. This meant that the club lost any chance of being the successfultenderer.

74

©A.Kuklik

OfferTenders


• The club sued the council for damages for breach of contract.

• Did the call for the tenders constitute an offer to consider them all?

• Generally an invitation is no more than an offer to receive tenders. But in certaincircumstances it could give rise to a contractual obligation, either from:

– The express words used in the tender

– The circumstances surrounding the sending of the invitation

– Both

• Here it was both becauseX

75

©A.Kuklik

OfferTenders


• Here the pertinent factors indicating a contract were held to be:

– The Council approached a small, select group of tenderers.

– They were all connected with the airport

– The plaintiff had held the concession for eight years and had won three previous tenders

– The Council was obliged to comply with its standing orders and owed a duty to ratepayers to act prudently in managing its financial affairs.

– There was a clear intention on the part of both parties that all timely tenders would be considered.

– Special envelopes were supplied to each tenderer to preserve anonymity.

76

©A.Kuklik

OfferTenders


• How would the ordinary person reading the tender document construe it?

– The Council might or might accept not any particular tenderXbut if it did consider any tender that was submitted before the deadline, it would consider all such tenders. The plaintiff had a right to have its tender at least considered.

• Although contracts should not be lightly implied Bingham LJ was satisfied here that both parties intended to create contractual relations.

• Stocker LJ said that this one of the fairly rare exception to the rule about tenders.

77

©A.Kuklik

OfferStanding offers

• A person can specify a willingness to provide goods or services to another over a specified time period.

78

©A.Kuklik

OfferRange of offerees

• The offeror can restrict the offer to a single person or a range of people:

– A specified person

– Specified persons

– A class of people defined aby a description

– The world at large

79

LAW OF CONTRACT


Week 2

Alex Kuklik

80

©A.Kuklik


• The Fact of Agreement: Acceptance

– Acceptance generally

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

− R v Clarke (1927) 40 CLR 227 (R&G(C)[4.9])

− *Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C)[4.10])

− *Brinkibon v Stahag Stahl [1983] 2 AC 34 (R&G(C)[4.11])

− *Bressan v Squires [1974] 2 NSWLR 460 (R&G(C)[4.12])

– Alternatives to Offer & Acceptance

− Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965 (R&G(C)[4.13])

– Termination of Offers

− Stevenson, Jacques and Co v McLean (1880) 5 QBD 346 (R&G(C)[4.6])

− Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C)[4.7])

− *Mobil Oil v Lyndell Nominees (1998) 153 ALR 198 (R&G(C)[4.8])

81

©A.Kuklik


• Certainty and Completeness

− Text: Radan & Gooley, Chapter 5

− Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C)[5.2])

− Whitlock v Brew (1968) 118 CLR 445 (R&G(C)[5.3])

− Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1

− United Group Rail Services Limited v Rail Corporation New South Wales[2009] NSWCA 177 (R&G(C)[5.4])

− Masters v Cameron (1954) 91 CLR 353 (R&G(C)[5.25)

− Meehan v Jones (1982) 149 CLR 571

82

©A.Kuklik

AcceptanceAims 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.

83

©A.Kuklik

Acceptance

Acceptance generally


• If an offer has been made and it has not been terminated, an agreement will come into effect if the offer is accepted.

• Acceptance is usually express, but can be implied.

• Acceptance must be unequivocal.

• The acceptance brings about: consensus ad idem – a meeting of the minds

84

©A.Kuklik

Acceptance

Acceptance must be unequivocal

• The requirement that it be unequivocal means that in accepting the offer, there if nothing left to be negotiated.

• This is a matter of interpreting the language used by the parties.

85

©A.Kuklik

Acceptance

Acceptance must rely upon the offer.

• The offeree must have knowledge of the offer for this to occur.

• This can be rebutted with evidence to the contrary.

86

©A.Kuklik

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– WA Government offered reward of £1000 (about £54,552 now or $116,584) for information leading to arrest and conviction of killers. Clarke provided the information (and had knowledge of the offer). He gave testimony at their trial that when he proffered the information, he had no intention of claiming the reward. Later he asked for the money.

– Majority of the HCT said NO. When he gave the information, he did not do so with the offer in mind, even though he was performing the required act. He had this in his mind later. Therefore providing the reward was not a proper acceptance.

87

©A.Kuklik

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Isaacs J:

• The information was not given in exchange for the offer. For consensus to exist acceptance is essential as offer, even when the same act is sufficient for acceptance and performance. Must act on the offer.

• He was doing it exclusively to clear himself of the charge.

– Higgins J:

• He did not intend to accept the offer. He did not mentally assent to the offer. Therefore consensus of mind did not occur until afterhe gave the information.

88

©A.Kuklik

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Starke J:

• If he performs the condition, but does not act upon faith or in reliance of the offer, he does not accept the offer (including if he forgets the offer).

• As a matter of proof, any person, knowing of the offer, who performs the condition, is prima facie taken to accept the offer.

• But this can be rebutted: It is an inference of fact that can be excluded by evidence (as here, where he explicitly disavows reliance).

89

©A.Kuklik

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Starke J:

• Took a different view on facts: Here the inference is not displaced because he did know of the offer and provide the information, and nowhere in the evidence is it said that he did not act upon faith of or in reliance of the offer (and this was not put directly to him).

• The evidence suggested that Clarke acted on the offer, but had not addressed his mind to whether he would claim the reward or not.

• But ultimately the inference of fact was for the trial judge to determine.

90

©A.Kuklik

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Some commentators argue that acceptance should be valid even without reliance: R&G(C) p 70.

– Or that the concept of reliance is very weak and the claimant has to clearly deny that he/she relied on the offer for the inference to be rebutted: R&G [4.78].

– Cf: UK – the position has been held to be ‘open’:

• *Eastern Shipping Company Ltd v Far East Chartering Ltd [2011] EWCA 1372 (Comm), [47].

91

©A.Kuklik

Acceptance

Acceptance must correspond with the offer.

• If an acceptance alters or adds to the terms of the offer in any way, it is not an acceptance. It is a counter-offer which has the effect of rejecting the original offer.

– *Turner Kempson & Co Pty Ltd v Camm [1922] VLR 498 (R&G [4.79])

• Camm sent a letter to Turner, accepting an offer from Turner to sell him a quantity of raspberry pulp, but adding that he wanted it delivered ‘in 3 lots of 5 tonnes each, approximately 10 days between each delivery.’

• The Court held this to be a counter-offer and not an acceptance.

92

©A.Kuklik

Acceptance

Acceptance must correspond with the offer.

Exceptions

• However, if the additional clauses clearly do not affect the acceptance, with the offer, suggestion or request of additional terms, then the contract will be formed.

• That is, the ‘acceptance’ can be an acceptance on the terms as offered and proffering additional terms that the original offeror can accept if she wishes.

– *Dunlop Higgins (1848) 9 ER 805 (R&G [4.80])

• Accepted offer, and requested delivery on a certain date. It was held that the acceptance was valid because it did not depend on the offeror accepting the proposed delivery date – it was a request that the delivery rake place on a certain date.

93

©A.Kuklik

AcceptanceAcceptance must correspond with the offer.

Exceptions

• If there is a deviation from the offered terms but it is solely in favour of the offeree, it may still be a valid acceptance.

• If acceptance does not coincide exactly with the offer due to some error or mis-description by the offeree when acceptance is made, this does not necessarily invalidate the acceptance.

– *Carter v Hyde (1923) 33 CLR 115

• Offer: Sell you the hotel including furniture at time of offer. Acceptance: Sell me the hotel including furniture at time of acceptance. Court held this not to be a counter-offer but merely an error in the acceptance. Therefore acceptance was valid.

• But CF: *Redowood Pty Ltd v Mongoose Pty Ltd [2005] NSWCA 32

94

©A.Kuklik

Acceptance

Communication of Acceptance

– The acceptance of an offer must be communicated to an offeror. Acceptance is only effective once communicated.

• *Tim Hoffman & Co (1873) 29 LT 271, 278

– *Powell v Lee (1908) 99 LT 284

• School management committee accepted Powell’s application for headmaster’s job, but did not officially communicate this to him. He was told informally by a committee member. Job went elsewhere. He sued for breach. It was held that there had been no authorised communication of the acceptance.

• The requirement for communication for the benefit of the offeror.

95

©A.Kuklik

AcceptanceCommunication of Acceptance

• Most acceptances are by means of some express statement made by the offeree.

• Generally, silence cannot amount to acceptance.

• An offeror cannot stipulate that no response to the offer will be treated as an acceptance. i.e. “If I don’t hear from you in 48 hours, I will take that as acceptance of the terms..”

– *Felthouse v Brindley (1862) 142 ER 1037

• There are exceptions to this:

– Equitable estoppel (dealt with in week 4).

– Where conduct of the offeree amounts to an implication that he or she has accepted the offer• *Empirnall Holdings v Malcolm Paull Partners (1988) 14 NSWLR 523

96

©A.Kuklik

AcceptanceCommunication of Acceptance

• In some circumstances where there has been an offer, acceptance can be inferred from conduct of the offeree that is consistent with the offer.

– “Xif it is clear that the offeree did the act in question with the intention of accepting the offer.”

• *Day v Morris Associates v Voyce [2003] EWCA Civ 189.

– “Xwhether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.”

• *Empirnall Holdings v Malcolm Paull Partners (1988) 14 NSWLR 523

•

97

©A.Kuklik

Acceptance

Communication of Acceptance

• Communication of the acceptance can be dispensed with

– As it is for the benefit of the offeror, she is at liberty to dispense with this requirement. Such a dispensation can be explicit or implied.

• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

– Offers that lead to unilateral contracts usually involve an implied dispensation (by the offeror) of the requirement to communicate acceptance.

• *Kuzmanovski v NSW Lotteries Corporation (2010) 270 ALR 65

– A ‘scratchie’ which said, ‘Prize payable on presentation’, was an offer which could be accepted on presentation.

98

©A.Kuklik

Acceptance

Postal acceptance rule

*Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

– Grant applied for shares, a number were allotted to him, and notice was sent by post, but never arrived. Three years later the company was liquidated and unpaid amount on the allotted shares was claimed by liquidator. Grant said that he never got the allotment and therefore the acceptance never reached him – No agreement.

– Majority held that acceptance was complete when allotment was posted. Failure to arrive was irrelevant.

99

©A.Kuklik

AcceptancePostal acceptance rule

*Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

– Thessiger LJ

• Post office is agent of both parties and so acceptance complete when posted. The acceptor has done an extraneous act, which clenched the matter.

– Bramwell LJ (diss)

• Equal hardship to offeror if not received, so why should posting be binding? No different to delivery by hand (which, if it fails = no acceptance), so why different in principle by post?

– Idea that postal service is agent of both parties later rejected in *Henthorn v Fraser [1892] 2 Ch 27, 35-36.

100

©A.Kuklik

Acceptance


*Henthorn v Fraser [1892] 2 Ch 27, 35-36.

– “Where the circumstances are such that it must have been in the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is completed as soon as it is posted.” (R&G [4.98])

• It has been held that sending by telegram is analogous to postage and therefore the rule applies to telegrams.

– *Cowan v O’Connor (1888) 20 QBD 640.

101

©A.Kuklik

Acceptance


• However, Courts have restricted the further operation of the rule:

*Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

– Squires granted an option to purchase a property. Could be exercised ‘by notice in writing addressed to [Squires] at any time on or before 20 December 1972 and received by Squires on 21 December 1973.’

– Held that the postal acceptance rule was excluded.

– Bowen CJ in Eq

− Adopted Henthorn v Fraser formulation.

102

©A.Kuklik

Acceptance


*Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

− Given that based on notions of expediency and convenience, it does not apply where its application would produce manifest inconvenience or absurdity, particularly for options for the purchase of land.

− The clause simply described the notice and did not stipulate that it should be exercised by being addressed in the sense of sent or posted on or before 20th December 1972. What was required was actual notice before 20th December 1972.

103

©A.Kuklik

Acceptance


*Brinkibon v Stahag Stahl [1983] 2 AC 34

– Negotiations over steel purchase. Communications were by telex. Acceptance taken to have occured when return telex was received.

– Lord Willberforce

• Telex is to be likened to other forms of instantaneous communication and therefore offer is accepted when the telex is received and is taken to occur where the telex was received (this was important here to determine which jurisdiction applied, UK or Austria).

104

©A.Kuklik

Acceptance


*Brinkibon v Stahag Stahl [1983] 2 AC 34

– Lord Fraser Tullybelton

• Telex directly from acceptor‘s office to offeror‘s office is to be treated as instantaneous communication.

• Not unreasonable to treat it as delivered when it arrived at the offeror‘s telex machine (even if not read).

• Therefore instantaneous communications such as telex and telephone are to be treated as being accepted when received (if telephone – the moment when it is heard)

105

©A.Kuklik


• But if the telex is sent after hours?

– *Schelde Delta Shipping BV v Astarte Shipping Ltd (The Pamela) [1995] 2 Lloyd‘s Rep 249, 252

• Deemed to have been received by offeree at the start of the next business day.

– The rule does apply to indirect use of telex (using Chief Telegraph Office): *Leach Nominees v Walter Right Pty Ltd [1986] WAR 244.

• Offer was made by private telex to offeree‘s agent by way of public telex system and the offerer must have known that an answer would be by way of a public telex operated by a third party. So acceptance made when dictated.

106

©A.Kuklik


• Rule does not apply to facsimile transmission:

– *Egis Consulting Australia Pty Ltd v First Dynasty Mines Ltd [2001] WASC 22 at [9] – [10].

• Rule does not apply to email:

– *Olivaylle Pty Ltd v Flottweg GMBH & KGAA (No 4) (2009) 255 ALR 632 at 642 (See further the legislative approach)

– Carter says that the poition in relation to email is unclear.

• Contract Law in Australia, Carter [6th ed] [3-38]

• What about DX, courier or interactive website?

107

©A.Kuklik

Acceptance


• Principles:

– Only applies if it is reasonable, contemplated or authorised that acceptance be by letter or telegram.

• *Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93

– “Xcannot be justified unless it is inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act.” Contentious negotiations regarding dispute between the clients of two solicitors. Held not to apply.

108

©A.Kuklik


• Principles:

– Letter or telegram must be properly posted:

• Proper address

• Postage properly paid

• And actually left with post office

– Receipt is irrelevant

• *Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

– The offeror can exclude the operation of the rule at the time that the offer is made.

• *Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

109

©A.Kuklik


*Electronic Transactions Act 2000 (NSW)

• The Act applies unless the parties agree otherwise.

110

©A.Kuklik


*Electronic Transactions Act 2000 (NSW), s 13:

(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication, the time of dispatch of the electronic communication is:

(a) the time when the electronic communication leaves an information system under the control of the originator or of the party who sent it on behalf of the originator, or

(b) if the electronic communication has not left an information system under the control of the originator or of the party who sent it on behalf of the originator-the time when the electronic communication is received by the addressee.

Note : Paragraph (b) would apply to a case where the parties exchange electronic communications through the same information system.

(2) Subsection (1) applies even though the place where the information system supporting an electronic address is located may be different from the place where the electronic communication is taken to have been dispatched under section 13B.

111

©A.Kuklik


*Electronic Transactions Act 2000 (NSW), s 13A:

(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication:

(a) the time of receipt of the electronic communication is the time when the electronic communication becomes capable of being retrieved by the addressee at an electronic address designated by the addressee, or

(b) the time of receipt of the electronic communication at another electronic address of the addressee is the time when both:

(i) the electronic communication has become capable of being retrieved by the addressee at that address, and

(ii) the addressee has become aware that the electronic communication has been sent to that address.

(2) For the purposes of subsection (1), unless otherwise agreed between the originator and the addressee of the electronic communication, it is to be assumed that the electronic communication is capable of being retrieved by the addressee when it reaches the addressee’s electronic address.

(3) Subsection (1) applies even though the place where the information system supporting an electronic address is located may be different from the place where the electronic communication is taken to have been received under section 13B.

112

©A.Kuklik


*Electronic Transactions Act 2000 (NSW), s 13B:

(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication:

(a) the electronic communication is taken to have been dispatched at the place where the originator has its place of business, and

(b) (b) the electronic communication is taken to have been received at the place where the addressee has its place of business.

(2) For the purposes of the application of subsection (1) to an electronic communication:

(a) a party’s place of business is assumed to be the location indicated by that party, unless another party demonstrates that the party making the indication does not have a place of business at that location, and

(b) if a party has not indicated a place of business and has only one place of business, it is to be assumed that that place is the party’s place of business, and

113

©A.Kuklik


*Electronic Transactions Act 2000 (NSW), s 13B:

(c) if a party has not indicated a place of business and has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the transaction, and

(d) if a party has not indicated a place of business and has more than one place of business, but paragraph (c) does not apply-it is to be assumed that the party’s principal place of business is the party’s only place of business, and

(e) if a party is a natural person and does not have a place of business-it is to be assumed that the party’s place of business is the place of the party’s habitual residence.

(3) A location is not a place of business merely because that is:

(a) where equipment and technology supporting an information system used by a party are located, or

(b) where the information system may be accessed by other parties.

(4) The sole fact that a party makes use of a domain name or electronic mail address connected to a specific country does not create a presumption that its place of business is located in that country.

114

©A.Kuklik



• In relation to the applicability to contracts – see ss 14A – 14E

• In relation to compliance with the need for writing or signature – see ss 7 -9

115

©A.Kuklik



14B Invitation to treat regarding contracts

(1) A proposal to form a contract made through one or more electronic communications that:

(a) is not addressed to one or more specific parties, and

(b) is generally accessible to parties making use of information systems,

is to be considered as an invitation to make offers, unless it clearly indicates the intention of the party making the proposal to be bound in case of acceptance.

(2) Subsection (1) extends to proposals that make use of interactive applications for the placement of orders through information systems.

116

©A.Kuklik



14B Invitation to treat regarding contracts

(1) A proposal to form a contract made through one or more electronic communications that:

(a) is not addressed to one or more specific parties, and

(b) is generally accessible to parties making use of information systems,

is to be considered as an invitation to make offers, unless it clearly indicates the intention of the party making the proposal to be bound in case of acceptance.

(2) Subsection (1) extends to proposals that make use of interactive applications for the placement of orders through information systems.

117

©A.Kuklik

Alternatives to Offer and Acceptance• R&G [4.109]

• Tradditional rule of offer/acceptance does not work well in all situations – neither sufficient or necessary in all cases: e.g. travel on mass transit, exchange of contracts to sell land, brokers acting for both parties.

– *Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153, 176, per Heydon J.

• Although it doesn‘t work well in some cases, no reason for wholesale abandonement.

– *Magill v Magill (2006) 226 CLR 551, 617, per Heydon J.

118

©A.Kuklik

Alternatives to Offer and Acceptance• R&G [4.109]

• One area where simple offer and acceptance does not work well is in ‘Battle of the forms‘ cases...

– A offers to buy goods from B on A‘s terms

– B offers to sell those goods only on B‘s terms

• What is the result?

– The Court will examine the conduct of the parties and try to objective interpret the documents

– The result could be:

• Contract on A‘s terms

• Contract on B‘s terms

• Contract on terms implied by law – but not A or B‘s terms

• Contact blending A and B‘s terms

• No contract

119

©A.Kuklik

Alternatives to Offer and AcceptanceBattle of forms

Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965. (R&G(C) [4.13])

• Butler sent offer for purchase of machine on standard agreement which included price escalation clause, which allowed a price increase in certain circumstances. Ex-Cell-O placed order at the set price stating that subject to its standard terms (which did not include price escalation). There was a tear off strip to confirm the order and sign acceptance. Butler did this, but noted that acknowledgment was in accordance with its standard offer. Ex-Butler built the machine and claimed price in accordance with price escalation clause.

• Did the agreement include the escalation clause?

120

©A.Kuklik


Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965. (R&G(C) [4.13]) (R&G [4.112])

Denning MR

• Adopting traditional analysis:

– Butler made offer to Ex-Cell-O with terms and conditions on the back

– Ex-Cell-O sent an acceptance, but with such changes to the terms that it was in reality a rejection and counter-offer

– Butler accepted the counter-offer (the reference to the original quote referred only to price and the identity of the machine)

• Held – Ex-Cell-O’s terms were a counter-offer which was accepted when Butler returned the signed strip. Butler’s notation on the strip was a reference to price and identity of the machine only and did not amount to a re-affirmation of the terms and conditions of the original offer. Therefore it was not a counter-offer. But the Court discussed the problem arising in these cases.

121

©A.Kuklik



• Often traditional analysis will be out-of-date. The better way is to look at all of the documents and glean from them or the conduct of the parties, whether they have reached agreement on all material points even though there are differences in the forms and conditions on them.

• Using this guide, the agreement is usually formed when the last form is sent. But on what terms? Which form or which part of a form is included in the agreement.

• Battle may be won by last shot, first shot or may depend upon circumstances. The terms and conditions of both parties are construed together.

122

©A.Kuklik



Steyn LJ

Each party insists on contracting only on his standard conditions. In the mean time the work starts. Payments are made. Often it is a fiction to identify an offer and acceptance. Yet reasons tells us that neither party should be able to withdraw unilaterally from the transaction. The reasonable expectations of the parties' albeit that they are still in disagreement about minor details of the transaction, often demand that the court must recognise that a contract has come into existence. The greater the evidence of reliance, and the further along the road towards implementation the transaction is, the greater the prospect that the court will find a contract made and do its best, in accordance with the reasonable expectation of the parties, to spell out the terms of the contract.

• (1997) 113 Law Quarterly Review 433

123

©A.Kuklik


*Goodman Fielder Consumer Foods Ltd v Cospack International Pty Ltd [2004] NSWSC 704, [46] – [53] (R&G [4.114 - 120])

– 3 Approaches:

• ‘Last shot doctrine’ – each document is a counter-offer, so if any contract is formed (by conduct rather than by express acceptance), it is on the terms of the final document.

• ‘Higher Status Doctrine’ – forms with the higher status wins. It is the status of the document itself.

• ‘Synthesis approach’ – Agreement established without reference to offer and acceptance. In all the circumstances, can an agreement be inferred? Has mutual assent been manifested?

124

©A.Kuklik

Termination of Offer

Rejection

• An offer once rejected, is terminated

– Stevenson, Jacques & Co v McLean (1880) 5 QBD 346 (R&G(C) [4.6])

– Offeror need not formally revoke it after rejection. It is dead. A subsequent attempt to accept is in effect a counter-offer.

125

©A.Kuklik


Revocation

• An offer can be revoked at any time before it is accepted

– *Routledge v Grant (1828) 130 ER 920, 924 (R&G [4.54])

• Unless it is an option (which is a contract by which the option holder is entitled to enter into a contract with the grantor of the option, on a specified date, or within a period, by exercising the option):

– An option is either (depending on the circumstances – the Court split here):

• a conditional agreement (which becomes unconditional upon exercise); or

• an irrevocable offer (this is more popular theory in Australia)

– *Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674.

126

©A.Kuklik

Termination of OfferRevocation

Stevenson, Jacques & Co v McLean (1880) 5 QBD 346 (R&G(C) [4.6])

– McLean offered to sell iron for a set price C.O.D. Stevenson asked for credit. McLean took this as rejection; sold it somewhere else. But Stevenson accepted prior to formal notification of rejection. Sued, arguing that there was a contract.

• “Please wire whether you would accept forty for delivery over two months, or if not, the longest limit you would give.”

– Here, asking for credit was not a rejection, but merely an inquiry as to whether terms would be offered. (C.F. Hyde v Wrench). Court said that this is how McLean should have taken it.

– Looked at the form of the telegram and the circumstances of the sale in the current turbulent market.

127

©A.Kuklik

Termination of OfferWithdrawal

• If an offer is open for a fixed period of time, it can be withdrawn at any time prior to that, but until it is withdrawn, the offer is open (until the stipulated time runs out).

– This is because the promise to keep the offer open is unenforceable: the offeree has given no consideration for such a promise.

• Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])

• A withdrawal is only valid when it is received by the offeror. Postal rule does not apply here.

128

©A.Kuklik


Withdrawal

Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])

• Dodds offered to sell land, but before Dickinson accepted, Dodds sold it elsewhere. Dodds did not tell Dickinson, but Dickinson was made aware by his agent, Berry. Dickinson subsequently tried to accept the offer.

• Communication by Berry that the property was sold was enough to terminate the offer. Could not be accepted.

James LJ:

• Does not have to be an express withdrawal. If offeree knows that the

offer has been withdrawn, there cannot be consensus.

129

©A.Kuklik


Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])

Mellish LJ:

• If offeree received notice in some way, cannot validly accept the offer. If does not know, can accept. The communication does not have to come from the offeror, but it does have to get to the offeree.

• Does this make it hard for the offeree? How good is her information?

• Withdrawal of offer takes place when the offeree receives the communication (cf: Postal acceptance rule)

130

©A.Kuklik


• If the offeree cannot hear the communication or the phone goes dead –withdrawal not received and no withdrawal.

– *Entores v Miles Far East Corporation [1955] QB 327

• If a message is sent to offeree to withdraw, communication takes place when, in all the circumstances, a reasonable offeree would have accessed the message.

• So of telex sent, withdrawal is taken to have occurs when the telex was received irrespective of when it was read, because it was the offerees responsibility to read it.

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

• But conduct of the the offeror could displace the rule – dialled wrong number and left message?

131

©A.Kuklik


• Withdrawal of offers to the world:

– If publication of the revocation is as broad and given the same notoriety as the offer, then it does not matter that the offeree did not see it.

• *Shuey v United States 92 US 73 (1875)

• Carter says that this is likely to be followed in Australia.

– Contract Law in Australia, Carter [6th ed] [3-46]

132

©A.Kuklik

Termination of OfferWithdrawal after commencement of performance

• What if it is an offer to the world and the offeree has begun to perform but has not fully completed when it is revoked?

– *Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228 (R&G(C) [4.8]) ??

• There is little authority on this, because it is rare. This is because it is usually hard to see how a unilateral contract can be performed prior to complete performance – there is no acceptance until performance is complete.

• However it could occasionally cause hardship to the offeree.

133

©A.Kuklik


• It has been argued that an offer in a unilateral contract contains a subsidiary promise that the offer will not be revoked once the performance has commenced. This appears to be supported in:

– Abbott v Lance (1860) Legge 1283.

• But there were complicated facts and the promise not to revoke in that case was express. (i.e. if I revoke before you accept the offer (within the time), I will give you £100)

– Can such a promise be implied if this is not express?

• In the US if you have not commenced performing, but are only making preparations to perform, the offer can be revoked.

• ButX.

134

©A.Kuklik


*Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228 (R&G(C) [4.8])

• Franchisees of Mobile said it had offered benefits (free tenure) if reached sales targets over a number of years. The franchises started selling, but Mobile withdrew the offer before the time was up. Franchisees alleged that the offer could not be revoked because there had been part-performance.

Held

• The Court held that no offer was made. But nevertheless looked at the issue of revocation of offers after performance had begun.

• The trial judge reviewed the authorities and held that an offer that can be accepted by performance cannot withdraw the offer once performance has begun.

135

©A.Kuklik


Withdrawal after commencement of performance


• The Full Court held that there is no universal principle that cannot revoke after performance has commenced. It varies from unilateral contract to another.

• A fortiori if the performer has reaped a benefit (therefore no injustice).

136

©A.Kuklik



• In some cases it may be appropriate to find that the offeree has entered into an implied ancillary contract not to revoke, or that the offer is estopped from falsifying an assumption, engendered by it

• However that is not always the case. And in some cases the offeror can legitimately withdraw the offer. In particular, where what the offeree has done, is of benefit to the offeree.

• Factors that affect the issue: p 64.

• Here, Mobil could revoke offer. It was not unjust as they both got a benefit from the part performance.

137

©A.Kuklik



• The respective positions of offeror and offeree vary greatly from the case of one unilateral contract to another. The following factors illustrate:

i. The offeror may or may not know that the offeree has commenced performance;

ii. The offeree may or may not have an understanding that the offeror is at liberty to revoke and that any incomplete performance of the act of acceptance by the offeree will be at his or her risk;

iii. The notion of ‘commencement of performance of the act of performance’ can be problematic and lead to injustice to the offeror – here can performance of 90% in year one be commencement of performance of six years of 90% performance?

138

©A.Kuklik




iv. The act called for by the offer may be detrimental to the offeree, or of some benefit to the offeree as well as to the offeror, as in the present case;

v. Although the offeree is not obliged to perform, or to continue performing, the act of acceptance and is at liberty to cease performing at any time, ex hypothesi, the offeror remains bound, perhaps over a lengthy period as in the present case, to keep its offer open for completion of the act of acceptance, without knowing whether the offeree will choose to complete or not to complete that act;

vi. The circumstances of the particular case may or may not, by reference to conventional criteria, suggest that the parties intended that the offeror should not be at liberty to revoke once the offeree had performed the act of acceptance to some extent.

139

©A.Kuklik




• The Court held that there cannot be one simple rule:

– E.g. What if X makes a unilateral offer to the world to provide certain information, and A, B and C start looking for that information. If A finds it first and provides it to X, should you be able to say that X then cannot revoke the offer in relation to B and C?

• Reviewed Abbot v Lance (said it was awkward - inconsistent and short), and said that in that case, the £100 was just agreed compensation for the plaintiff’s time and trouble

140

©A.Kuklik




• Therefore - no general proposition that you cannot revoke such an offer.

• Even if you can argue that there is an implied promise not to revoke (consideration for which is the commencement of performance), it would not follow that the purported revocation was ineffective. It would be effective, but may give rise to damages for a breach of agreement.

• In Forbes v Australian Yachting Federation (1996) 131 FLR 241, SantowJ echoed this and suggested that there may be an estoppel action available to the offeree.

141

©A.Kuklik

Certainty and Completeness

• Text: Radan & Gooley, Chapter 5

• In addition to offer and acceptance, a contract must be sufficiently certainand complete.

• If an agreement is uncertain in a material respect it cannot constitute a binding contract. This might occur if the agreement is 'vague or ambiguous', incomplete or constitutes a mere 'agreement to agree'.

• There are two limbs to the certainty doctrine. A contract (or a term is void for uncertainty if:

(1) all the essential and critical terms of the bargain have not been agreed upon; or

142

©A.Kuklik

Certainty and Completeness(2) the language used is so obscure and incapable of any precise or

definite meaning that the court is unable to attribute to the parties any particular contractual intention.

• Under the first limb, the contract is incomplete. Under the second limb, the court is unable to attribute a meaning to the language used by the parties. Both limbs apply only to essential terms.

– *Australian Goldfields NL (in liq) , North Australian Diamonds (2009) 40 WAR 191

• You need to distinguish between:

– Uncertainty and difficulty in interpretation or application

– Material (essential) and non- material (non-essential) terms.

143

©A.Kuklik

Certainty and Completeness• Certainty is not a fixed concept, it is a matter of degree and sufficiency.

• The courts have traditionally delineated certainty from uncertainty by relying on indicators such as essentiality and obscurity and have traditionally divided the issue of uncertainty into two related principles:

– Uncertainty – the language of the agreement is so vague or imprecise as to make it undiscernible what obligations and rights have been agreed between the parties.

– Incompleteness – rather than in precision of language, the agreement is missing a key element such that it is held that there is no complete agreement.

• These categories are overlapping and a contract can be uncertain in a number of ways.

144

©A.Kuklik

Certainty and Completeness• The courts have traditionally taken a strict approach to the problem of

uncertainty, striking out clauses or agreements when it is found that an essential term is missing or undecipherable: If a given term was found to be uncertain, and was essential, the contract would be void, and if not, then the clause may be severed.

– A repurchase option in an agreement for the sale of land which specified that the repurchase price was the sale price plus the value of additions and improvements since the sale, less the deficiencies of chattel and a reasonable sum for depreciation, was held to lack specificity and therefore be unenforceable due to uncertainty.

• *Hall v Busst (1960) 104 CLR 206.

145

©A.Kuklik

Certainty and Completeness• More recently, the courts in Australia have placed an emphasis on

trying to uphold agreements if at all possible, particularly in commercial transactions:

“It is obvious, in my opinion, that in dealings between business people there cannot always be certainty or predictability about the future course of events arising out of or in the performance of a business relationship which they desire to, and may lawfully, create. The course of business often means that this must be so and it would, as Lord Tomlin said [in Hillas & Co Ltd v Arcos (1932) 147 LT 503] be a reproach upon the law if parties who intended to agree, and believed they had agreed in this way, should be told that their agreement for legal reasons had never come into existence.”

• *Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761, 765.

146

©A.Kuklik

Certainty and Completeness• And it was recently held that for a clause to be void for uncertainty, it must

be “utterly impossible to put a meaning to the words.” This clearly appears to be a shift away from a traditional assessment of uncertain clauses.

– *Seven Network (Operations) v Warburton (No.2)(2011) 206 IR 450, [37].

• If it is clear that the parties regard themselves as having reached a concluded and binding contract, a court will seek to give effect to that contract even if there are terms that were left to be agreed upon at a later time

– *Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 at 446.

• If the court is unable to do so, the agreement is void, and thus completely unenforceable. The court will not fix the deficiency itself because that would involve it in writing the contract for the parties. It is up to the parties to come to agreed terms - the court will not make an agreement for them.

147

©A.Kuklik

Certainty and CompletenessSufficient completeness

*Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C) [5.2])

• Booker leased to Wilson a service station and car park. A clause of thelease gave an option for a further 3 years on the same terms, but rent tobe mutually agreed. Failing such agreement the lease provided for rent toby set by an arbitrator appointed by the President of the QLD LawSociety.

• Wilson tried to exercise the option. Booker rejected this and soughtrecovery of possession.

• At trial it was held that the clause was valid and specific performance wasgranted. P was to do whatever was required to permit the appointment ofan arbitrator.

148

©A.Kuklik



• On appeal to the Full Court it was agreed that the option was validlyexercised, but the relief granted was considered too wide. Both partiesappealed to the High Court.

Held

• Authority makes it clear that the courts will not enforce an incomplete agreement - "an agreement to agree". If the lease was for renewal at a "rental to be agreed" there clearly would be no enforceable agreement.

• But parties can provide a procedure which allows even essential terms to be determined by a 3rd party.

149

©A.Kuklik



• Here, the lease provides the mechanism to determine the rent - no further agreement is required of the parties. Thus there is a valid agreement to renew - You can leave terms to be determined by a third party.

• To give business efficacy, it was necessary to imply a term that the parties will do what is necessary to ensure the appointment of an arbitrator. This is amenable to specific performance.

• “Machinery provisions” as they are often called are new a topical issue in contract law.

150

©A.Kuklik



• What if the machinery breaks down (What if the Law Society President refused to appoint someone?) – here it suggested that this would result in no renewal of lease.

• But it’s not always that simple.

• To what extent should the Court step in to imply a terms to otherwise plug the hole? Here the Court allowed limited specific performance on the basis of the implied term.

• What if one party confounds the machinery?

151

©A.Kuklik

Certainty and CompletenessSufficient certainty

Whitlock v Brew (1968) 118 CLR 445 (R&G(C) [5.3])

• Brew entered a contract to purchase land from Whitlock. A condition provided that Brew, on taking possession of the land, would then lease the current petrol station on the land to Shell “on such reasonable terms as commonly govern such a lease” and if there was a dispute ‘as the operation or interpretation’ of the clause it was to be referred to arbitration - failing agreement on who, the arbitrator was to be appointed by the President of the Law Institute of Victoria.

• Whitlock rescinded the contract. Brew sued to recover deposit – he argued that the condition was uncertain and could not be severed from the rest of the agreement. Therefore the whole agreement was void for uncertainty and he could get the deposit back.

152

©A.Kuklik



HELD Taylor, Menzies and Owen JJ

• The clause as expressed is not sufficient to cover:

– the period of the lease, or

– the rent.

• The arbitration provision "as to the interpretation or operation" of this clause is not sufficient to cover a dispute of either of those matters either.

• Therefore the clause is uncertain.

153

©A.Kuklik




• Is it severable? Depends if the contract is divisible, and this depends on the intention of the parties.

• Extrinsic evidence cannot be used - except to interpret the written instrument.

• One must determine intention as disclosed by the contract. Here the clause was definitive of the ultimate rights that the purchaser would get.

154

©A.Kuklik




• They likened the situation to one where A agrees to sell land to B provided B agrees to grant a lease to any person who buys A's business (*Duggan v Barnes). In that earlier case there was no difficulty in seeing B's undertaking as a material and inseverable part of the consideration for A's promises. The same applies here. VOID

155

©A.Kuklik

Certainty and CompletenessAgreements to agree

• ‘Agreements to agree’ are void for uncertainty.

– i.e. We agree that we will later agree on terms X, Y Z.

– *Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C) [5.2])

• But what about agreements to “negotiate in good faith“?

156

©A.Kuklik

Certainty and CompletenessAgreements to negotiate in good faith

• Courts have not always been consistent in defining what it means to negotiate in good faith. It has even been suggested that “a promise to negotiate in good faith is illusory and therefore cannot be binding”

– Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 42 per Handley JA). But cf Kirby

• However, a duty of good faith will be enforceable in certain circumstances. If such a promise is enforceable, the following broad principles will usually apply to the promise to negotiate in good faith:

– the parties must act honestly;

– each party must have regard to the legitimate interests of the other party; and

– neither party must act in a manner which is arbitrary, capricious or intended to cause harm to the other party.

157

©A.Kuklik


• It is also important to note what the duty is not. The duty does not:

– limit the parties seeking to strike the best possible bargain in their own interests; or

– limit the parties, for instance, from negotiating with someone else at the same time (unless there is a specific contractual prohibition on doing so).

158

©A.Kuklik


Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1

• Parties entered into a ‘heads of agreement’ to jointly develop mining rights. The agreement anticipated execution of a joint venture in the future. However, they failed to reach final agreement and a few years later negotiations were terminated. Sijehama alleged breach of ‘heads of agreement’ and claimed damages.

• The heads of agreement included the term:

“The parties will proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture agreement ... which when agreed [would] take the place of these heads of agreement.”

159

©A.Kuklik



• It was found that this promise was unenforceable given that it was essentially “an agreement to agree” and therefore too vague and uncertain.

• However, it was suggested that an explicit promise to negotiate in good faith could be certain enough to be legally binding in some circumstances, including where:

– the promise is clear and part of an undoubted agreement between the parties; and

– there is reference to a readily ascertainable external standard, and the court is able to attribute a meaning to a provision.

160

©A.Kuklik



• Kirby P: ‘Courts and lawyers may expect the agreements of business people to be clear and complete. Unfortunately, in the marketplace, agreements often fall short of these lawyerly desires. Yet the law of contracts serves the marketplace. It does not exist to satisfy lawyers’ desires for neat rulesXI have already noted the basic law that courts will not enforce an agreement to agree. This is accepted by the High Court as part of the law of this countryX’

161

©A.Kuklik



• However Kirby refers to the English case of *Hillas & Co Ltd v Arcos Ltd(1932), where the House of Lords found that ‘in strict theory, there is a contract (if there is good consideration) to negotiate, though in the event of repudiation by one party the damages by nominal>’ Lord Denning disagreed in a later judgement with the decision in Hillas, saying that the opinion ‘does not seem to be well founded’ because ‘if the law does not recognize an agreement to agree>it seems to me it cannot recognise a contract to negotiate. The reason is because it is too uncertain to have any binding force. No court could estimate the damages because no one could tell whether the negotiations would be successful or would fall through: or if successful what the result would be. It seems to me that a contract to negotiate, like a contract to enter into a contract, is not a contract known to the law.’

162

©A.Kuklik



• Kirby ultimately rejects the notion that a contract to negotiate is unknown to the law. He agrees with the House of Lords in Hillas that, provided there was consideration for the promise, in some circumstances a promise to negotiate in good faith will be enforceable, depending upon its precise terms.

• Acknowledged that an agreement to negotiate in good faith brings up questions like ‘what must you disclose to one another in these future negotiations? How will any potential disputes be resolved? What must be disclosed to each other at these negotiations?’ Kirby said you must look at the clause’s drafting and mechanisms to see if it can stand on its own two feet as having sufficient content. Things such as a prescribed tiebreaker mechanism will help the court give content to the clause.

163

©A.Kuklik


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

• United contracted to construct rail infrastructure for Railcorp, but a dispute arose between the parties.

• A clause required a dispute to be referred to senior representative of each party and they were obliged to ‘meet and undertake genuine and good faith negotiations with a view to resolving the dispute of difference.’

• Negotiation was a preliminary step in the contract's overall dispute-resolution mechanism; if the senior representatives failed to resolve the dispute within 14 days, the final step was to send the parties to arbitration.

164

©A.Kuklik



• United asserted that the clause requiring the parties to negotiate in good faith lacked certainty to the point of being incomplete, and so was void and unenforceable. Railcorp denied this.

• The Court of Appeal found that the obligation to negotiate in good faith was enforceable in these circumstances because the clause provided an objective “yardstick” by which the Court could determine whether the parties had complied with it.

165

©A.Kuklik



• In other words, the clause should contain some criteria or objective measure against which the negotiations can be judged, such as here, where if the senior representatives failed to resolve the dispute within 14 days, the final step was to send the parties to arbitration. In order to determine whether there had been compliance with the clause, the Court looked to whether the parties had brought an honest and genuine approach to settling the contractual dispute, and whether they had given fidelity to the existing bargain.

166

©A.Kuklik

Certainty and CompletenessAgreements subject to contract

Masters v Cameron (1954) 91 CLR 353 (R&G(C) [5.5])

• An agreement was reached to sell a farming property on certain terms. It was stated that, "this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions."

• On the same day a deposit of £1750 was paid to the vendor's agent. When the purchaser refused to proceed with the sale, both parties claimed the deposit - the purchaser on the basis that there was no contract, therefore money paid should be returned - the vendor claiming that there was a contract and in the event of a failure to proceed, the money was forfeited.

• The judge held that there was a contract. The purchaser appealed.

167

©A.Kuklik



• The situation may be one of three possibilities:

1. The parties have finalised their agreement and intend to be bound straight away, but intend to put it into more precise form. Lord Blackburnin Rossiter (1878) - said that the mere fact that you have indicated a desire to have a more formal expression of the terms does not mean that negotiations are still continuing. An assent without power to vary the terms indicates a completed contract.

2. The parties have agreed all the terms, but have made performance of one or more terms conditional upon the execution of a formal document.

3. The parties do not want to be bound until they have completed the formal document. Here, the parties may wish to retain the right to withdraw, if agreement cannot be reached on outstanding matters.

168

©A.Kuklik



• In the first two cases we have a binding contract. In the third case we merely have a record of the terms which are intended to form the basis of a contract to be finalised.

• The question is to be determined by the parties intention as disclosed by their language. If "subject to contract" means there are terms to be agreed, or conditions to be fulfilled, then there is no contract until those things have been done.

• The High Court said that the present situation was category 3

169

©A.Kuklik



• To determine which category the agreement falls within, the intention of the parties must be determined based upon the language used. Here, the use of the language, ‘this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions’, was held by the court to indicate that the terms were not intended to be legally binding. The clause allowed the vendor’s solicitors to modify the agreement to their satisfaction and include any other terms they consider appropriate. In this respect, the agreement was not a concluded agreement until a formal contract was executed, therefore the parties were not legally bound by the agreement and able to decide against formalising the agreement.

170

©A.Kuklik



• Some jurisdictions accept a fourth category:

– Parties immediately bound by the terms on which they have agreed, but expect to make a further contract in substitution for the first contract, containing, by consent, additional terms.

• There is debate about this.

171

©A.Kuklik


Meehan v Jones (1982) 149 CLR 571

• Contract for sale of land, subject to purchaser entering into agreement to purchase satisfactory quantity of crude oil and ‘purchaser receiving approval for finance on satisfactory terms and conditions in an amount sufficient to complete the purchase.’

• The purchaser told the vendor that he had found satisfactory finance, but the vendor refused to complete. The purchaser sought specific performance, but the defendant argued that there was no contract on the following grounds:

1. That the condition left vital matters yet to be agreed - so what appeared to be a "contract" was really no more than an agreement to agree.

172

©A.Kuklik


Meehan v Jones (1982) 149 CLR 571

2. That the language was so imprecise that one could not say what actions would satisfy it.

3. That if P retains discretion as to whether he will perform obligations, then what appears to be a contract is really illusory.

• Were these terms sufficiently certain?

• High Court – YES.

• It was for the purchaser to determine whether he had entered into a satisfactory agreement for the supply of oil, and his satisfaction that the finance was sufficient.

173

©A.Kuklik

Certainty and CompletenessMeehan v Jones (1982) 149 CLR 571

Gibbs CJ:

• May be implied that the purchaser will act honestly, but this is not necessary for business efficacy.

• When a contract is ‘subject to finance’, question immediately arises whether the test to be applied is a subjective or an objective one. Although courts differ in opinion, if the court can decide which of the two possible meanings the parties intended, there will be no uncertainty

• Also said that it is clear that condition was not a condition precedent to the formation of the contract because certain obligations under the contract attached immediately after the contract was signed, even though the condition had not been fulfilled.

174

©A.Kuklik

Certainty and CompletenessMeehan v Jones (1982) 149 CLR 571

Mason, Wilson JJ

• Purchaser had obligation to do all that was necessary to obtain finance. Obliged to act honestly in deciding whether finance was satisfactory. Did not have to be reasonable.

“Although the binding words of the special condition suggest that its effect is to make the existence of the contract conditional, it is more sensible to regard the provision as one which provides for the determination of a valid and binding contract in the event that the purchaser or his nominee is unable to obtain approval for satisfactory finance on or before the appointed date.

• Ultimately, the High Court found that the clause in question was a condition precedent to performance; the High Court was in no doubt that that contract was actually binding on the parties. Point was that obtaining finance became a precondition to engaging the rest of the contract

175

LAW OF CONTRACT


Week 3

176

©A.Kuklik

Consideration

Aims and Objectives

• At the end of this lecture students should understand the concepts and rules relating to the doctrine of consideration.

177

©A.Kuklik

Consideration• Consideration

• Radan & Gooley, Chapter 6

• Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424(R&G(C) [6.2])

• Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 (R&G(C) [6.3])

• *Pao On v Lau Yi Long [1980] AC 614 (R&G(C) [6.4])

• Williams v Roffey Bros and Nicholls (Contractors) [1991] 1 QB 1 (R&G(C) [6.5])

• Foakes v Beer (1884) 9 App Cas 605 (R&G(C) [6.6])

178

©A.Kuklik

Consideration

• The element of consideration refers to the requirement that a contract is a bargain in the sense that there is an exchange between the parties of promises or an exchange of a promise for an act for the agreement to amount to a contract at law.

• The requirement of consideration is reflected in the major rule that unless a promisee has given consideration he or she cannot enforce the promisor’s promise. In such a case the promisee would be held not to have given consideration.

• The use of a deed allows for the enforcement at common law (but not in equity) of a promise for which no consideration has been given.

179

©A.Kuklik

Consideration

• For consideration to exist, the promisee must promise or do something that is of value in the eyes of the law. If there is no consideration, there is no contract, only the promise of a gift.

• If A promises to sell a book to B and B promises to pay $10, the consideration for each promise is the other party’s promise. A and B are simultaneously promisor and promisee. Contract is formed by the exchange of promises, even though neither party has performed his/her promise. This is a bilateral contract. In this case the consideration is executory.

• If the agreement is an exchange of a promise for an act (e.g. A promises to pay B $10 if B finds A’s dog) The contract comes into existence when B finds the dog. A’s promise is only enforceable when B finds the dog. This is a unilateral contract. B’s consideration is executed.

180

©A.Kuklik

Consideration

• Consideration must:

– Must bargained for

– Must move from the promisee (or one of them)

– Must not be past consideration

– Can be provided by way of forbearance to sue (giving up a legal claim in return for promise)

– Must be sufficient (discernible value in the eyes of the law) but doesn’t need not be adequate

– Cannot be illusory

181

©A.Kuklik

ConsiderationConsideration must be bargained for


• In June 1946 the Commonwealth Government announced a subsidy scheme to maintain the price structure of wool in the wake of the Second World War. It said that it would pay a subsidy to manufacturers of wool who purchased and used that wool for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.

• The plaintiff argued that a contract had been formed by the offer of a subsidy by the Government that offer being accepted by the doing of an act by the plaintiff, that is, buying the wool.

182

©A.Kuklik



Held:

• One has to look at whether the statement relied on as a promise was promised in return for the act and whether the act was done in consideration for a potential promise inherent in the statement.

• There must be a relationship of quid pro quo between the statement and the Act.

• Here there was no promise offered in consideration of doing an act. The doing of the act must be based upon the promise - not merely coinciding with it. E.g., if A says to B "I will pay you $100 on your arrival in Sydney" B could not necessarily enforce the promise on arrival. It may be that B was planning to go to Sydney anyway and did not act in response to the offer.

183

©A.Kuklik



• Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’

184

©A.Kuklik



• This is a case where consideration on the part of the offeree is completely executed by doing that which constitutes acceptance. (Carlill)

• In such cases the statement relied upon must be really offered as consideration for the doing of the act and the act must really be done in consideration of the (potential) promise contained in the statement.

185

©A.Kuklik

ConsiderationConsideration must move from the promisee

• If A and B enter into a contract in which B (the promisor) agrees to mow A's lawn and in return A (the promisee) agrees to pay $100 to C, A's promise to pay is consideration that has moved from A, not to B, but to C who is a third party to the promise.

• As a unanimous High Court recently affirmed, “[c]onsideration must move from the promisee ([B]); it need not move to the promisor [A]”

– *Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at 407.

• C, who has not provided any consideration, cannot, on that ground alone, enforce the promise that A made to B - only B can do that because he or she has provided consideration for A's promise.

• What about of the promisees are joint?..

186

©A.Kuklik


Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 (R&G(C) [6.3])

• Mr Coulls entered into agreement with O’Neill allowing O’Neill to quarry stone from Coulls’s land. Royalties to go to Mr and Mrs Coullsas joint tenants.

• Mr Coulls died. Agreement was vague as to whether it was between Mr Coulls and O’Neill or both of the Coullses and O’Neill.

• Mrs Coulls wanted to enforce the agreement (and claim the right of survivorship). Estate of Mr Coulls said that she had not provided consideration.

187

©A.Kuklik


Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 (R&G(C) [6.3])

• Majority said that agreement was between Mr Coulls and O’Neill only and therefore Mrs Coulls could not enforce it.

• Minority said that agreement was between both of them jointly and O’Neill. She could enforce it even though she had not provided consideration. Because if one of a number of joint promisees provides consideration, any other joint promisee can enforce the agreement, even if he/she has not provided consideration (majority agreed with the principle, just not the facts).

• All joint promisees must sue (but one can join another if he/she refuses). If one has died, the estate must be a party (if it refuses to be a plaintiff, it can be joined as a defendant), even though (here) the survivor is the only one to receive judgment.

188

©A.Kuklik

ConsiderationPast consideration is not consideration

• So-called “past consideration” is not consideration.

• What is meant by past consideration is a situation where something is done before any promise to pay for it is made.

• “An act already done without reference to a promise does not satisfy the concept of an exchange which underpins the law of consideration.” Thus, if B gives A a dog and A later promises to pay $50 to B for the dog, B cannot sue for the $50 because his or her act of giving the dog is past consideration.

– *Attorney-General for England and Wales v R

But there are exceptionsX

189

©A.Kuklik


*Pao On v Lau Yi Long [1980] AC 614 (R&G(C) [6.4])

• Pao agreed with Fu Chip to sell their shares in Sing On in exchange for an allotment of 4.2M shares in Fu Chip at $2.50 each. Pao also agreed not to sell 2.5 m of these before 30/4/1974

• In subsidiary agreement, Laus also agreed to buy back 2.5M shares from P by 30/4/1974 at $2.50 a share (which had to be held on to by the Paos).

• Pao realised that if the price went up they would not get the profit from price rise. So they refused to proceed with transaction unless the subsidiary agreement was replaced. Laus agreed to this: Guaranteed to pay $2.50 for the 2.5 m shares (minimum with no ceiling).

• The price of Fu Chip dropped. Pao wanted to enforce the new guaranteed price. Was there consideration for the guarantee?

190

©A.Kuklik


(R&G [6.31] – [6.34])


Sale of Sing On shares

Pao 4.2M Fu Chip shares Fu Chip ------- Lau (shareholder)

Subsidiary agreement no. 1

Oral agreement - Laus Will buy back 2.5M Fu Chip shares at $2.50 each by 30 April 1974

(Because fixed price, Paos protected from price fall but, don’t get benefit of increase in value of Fu Chip shares prior to 30 April)

Pao Subsidiary agreement No. 2: Guarantee to cover loss if buy back price lower than $2.50 Lau(no price ceiling)

Is there sufficient consideration for this promise by Lau in May 1973– all Pao is agreeing to do is to go ahead with the main agreement?

Agree not to sell 2.5M Fu Chip shares until 30 April 1974 -60%

191

©A.Kuklik



• Not past consideration because performance of parts of the main agreement still remained in the future.

• Where there has been performance of an act followed by a promise to pay for performance, the promise to pay will be supported by consideration if:

– The earlier act was done at the promisor’s request;

– The parties understand at the time when the act was done that it would attract some payment or remuneration; and

– Payment or remuneration would have been enforceable had it been made before the performance of the act

192

©A.Kuklik



• The mere existence of a previous request is not sufficient to convert past consideration into good consideration to support a promise. It is just one of the three elements.

193

©A.Kuklik



• Here:

– The promise by Pao to Fu Chip not to sell the shares for a year under the original agreement was made at Lau’s request.

– The parties understood at the time of the main agreement that the restriction on selling must be compensated for by a benefit of the guarantee of a floor price. This remained when the first subsidiary agreement was cancelled.

– Such a guarantee would’ve been legally enforceable.

194

©A.Kuklik



• Had P provided consideration for the guarantee?

• Was the guarantee obtained under duress exerted by Pao?

• Privy Council: Yes and No.

• Another way of looking at this is the fact that the promise given by Pao to carry out its existing obligations to Fu Chip, was given to Lau (rather than Fu Chip) and it was held that the promise to perform, or performance of, an existing duty to a third party, can be good consideration.

195

©A.Kuklik

ConsiderationExisting duty

• Traditionally, promising to perform an existing contractual duty already owed is not good consideration for an additional benefit.

196

©A.Kuklik


Williams v Roffey Bros and Nicholls (Contractors) [1991] 1 QB 1 (R&G(C) [6.5])

• Roffey entered into building contract and sub-contracted carpentry with Williams. Williams had difficulty and said he could not complete. Roffey offered more to Williams to complete on time. He accepted and did more work, but did not complete it. Other carpenters finished his work.

• Roffey refused to pay for the work done after the variation, saying that Williams had not offered to do anything in addition to that which he promised to do in the first place, therefore the additional promise was not supported by consideration from Williams.

197

©A.Kuklik



• Was the incomplete performance of the work by Williams substantial performance of his obligation?

• Did Williams provide consideration for Roffey’s promise to pay the additional amount?

• Yes and Yes. See p 108.

198

©A.Kuklik



– If B has reason to doubt that A will complete his agreement and offers to pay more for in return for A’s promise to perform his original obligation on time, and

– As a result of giving his promise B gains a benefit or avoids a disbenefit; and

– B’s promise is not given under economic duress or fraud by A,

– B’s promise will be enforced

199

©A.Kuklik



• This decision has been criticised – see p109 – South Caribbean Trading Ltd v Trafigura Beherr BV [2005] 1 Lloyds Rep 128, 149 – 150.

“But for the fact that Williams v. Roffey Bros Ltd, supra, was a decision of the Court of Appeal, I would not have followed it. That decision is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promisee. The judgment of Glidewell LJ. was substantially based on Pao On v. Lau Yin Long [1980] AC 614 in which the Judicial Committee of the Privy Council had held a promise by A to B to perform a contractual obligation owed by A to X could be sufficient consideration as against B. At page 15 Glidewell LJ. regarded Lord Scarman's reasoning in relation to such tripartite relationship as applicable in principle to a bipartite relationship. But in the former case by the additional promise to B, consideration has moved from A because he has made himself liable to an additional party, whereas in the latter case he has not undertaken anything that he was not already obliged to do for the benefit of the same party. Glidewell LJ substituted for the established rule as to consideration moving from the promisee a completely different principle - that the promisor must by his promise have conferred a benefit on the other party.”

200

©A.Kuklik

ConsiderationRule in Pinnel’s Case

• The rule in Pinnel's Case (1602) 77 ER237 states that part payment of a debt is not sufficient consideration for a promise to discharge the whole debt.

• In Pinnel's Case, Pinnel brought an action of debt on a bond of £16 as against Cole for payment of £ 8, 10s due on 11 November 1600. Cole pleaded that, at the insistence of Pinnel, he had paid him £5, 2s 2d on1 October 1600 and that Pinnel had accepted this in full satisfaction of the £8, 10s . The court held that payment of a lesser sum in satisfaction of a greater sum cannot be any satisfaction for the whole:

“Where the condition is for payment of 20 pounds, the obligor cannot at the time appointed pay a lesser sum in satisfaction of the whole, because it is apparent that a lesser sum of money cannot be a satisfaction of a greater.”

201

©A.Kuklik


• If a debtor owes a creditor $100, and the creditor promises to accept $70 in full satisfaction of the debt, the creditor's promise is not enforceable because the debtor has not provided any consideration for the creditor's promise to forgo the balance of $30. The consequence is that the creditor can sue the debtor to recover the balance.

• This has been described as “a most extraordinary peculiarity of the English Common Law.”

• Why?

202

©A.Kuklik


“On the one hand, creditors see in it an important protection against spurious advancement of defences of accord and satisfaction;X.

X.on the other hand, it has been seen as an obstruction to giving effect to the intentions of the parties to such agreements, and as a hindrance to good commercial practice.”

• R Austen-Baker, 'A Strange Sort of Survival for Pinnel's Case: Collier v P & M J Wright (Holdings) Limited‘ (2008) 71 Modern Law Review 611, p 616.

• SoX.

203

©A.Kuklik


Foakes v Beer (1884) 9 App Cas 605 (R&G(C) [6.6])

• Beer obtained judgment against Foakes for £2,090 plus interest on judgment. A year later Beer agreed that if Foakes paid £500 immediately and £150 twice a year until the judgment debt was paid, she wouldn’t enforce the debt in court.

• Beer paid the £2,090, but Beer sued for the interest on the judgment.

– Was the agreement enforceable?

– Did Foakes have to pay the additional interest?

204

©A.Kuklik



• H of L held that Beer was entitled to the interest, because this was a part of the agreement.

• Both the majority and dissenting minority agreed that if the agreement did not include the interest then the agreement would not have been enforceable because Foakes did not provide consideration for Beer’s promise not to sue.

• But Lord Blackburn criticised the underlying decision of Pinnel.

205

©A.Kuklik



• Principle: part payment of a debt is not sufficient consideration for a promise to discharge the whole of the debt.

• Beer’s promise not to enforce the debt was not itself enforceable and she could sue for the whole amount plus the interest.

• So is it a matter of whether there is a promise to pay more or a promise to pay less than the original debt?

206

©A.Kuklik


Exceptions:

1. Where the agreement to accept a part payment of the debt is set out in a deed.

2. Where the debtor promises something other than the payment of part of the debt, provided that what is promised amounts to, at least, nominal consideration:

– Couldery v Bartrum: “the gift of a horse, hawk or robe etc,insatisfaction is good for these might be more beneficial to the [creditor] than the money.”

3. Where the debtor promises to pay the lesser sum at a time earlier than originally promised: Pinnel's Case

207

©A.Kuklik


Exceptions:

4. Where the debtor promises to pay the lesser sum at a place different to that originally promised: Pinnel's Case

5. Where the debtor's promise forms part of a composition arrangement pursuant to the Bankruptcy Act 1966 (Cth), which allows a debtor to make an arrangement to pay a lesser sum to creditors, the composition arrangement has the effect of precluding the creditor going behind it and claiming the balance of the debt as this would amount to a fraud on the other creditors

6. Where the debtor can satisfy the requirements of the principle of equitable estoppel - the creditor will be precluded from bringing any action to recover the balance of the debt

208

©A.Kuklik


Exceptions:

7. Where the part payment of the debt is paid by someone else to discharge the full amount of the debt, the creditor cannot then claim the balance from the debtor.

209

©A.Kuklik

Consideration• Additional principles:

– Consideration must not be illusory (R&G [6.5])

• If there is a discretion to perform the act promised as consideration, then the consideration is illusory as the promisor is not obliged to do it.

• However, a discretion whether to perform or not is different to a discretion as to how to perform.

– Consideration must be sufficient, but it need not be adequate

• There is no need for the consideration to be at value: a promise to pay $100 for a $1M house is sufficient, but the natural love and affection of the promisee is not.

210

©A.Kuklik

Consideration• Additional principles:

– Consideration must be sufficient, but it need not be adequate

• See (R&G [6.38]) p 106 – 109

• Sufficient means a tangible benefit conferred by promisor on promisee. Can be token value or ‘nominal’.

• Can be behaviour – Dunton v Dunton

• Cannot be public duty

– Exceptions to consideration

• Deeds (at common law).

lpab - contract - winter 2017 - weekend 1 - session 1 2017/lpab... · – australian woollen mills...

Documents