Contract A

Nature of Contract

“An agreement or set of promises that the law will enforce (i.e. for breach of which

the law will provide a remedy)”

Definitional elements:

An agreement (or a promise)

Enforceability at law (or legal obligation to perform)

Internationalisation of Contract Law

International Restatement of Commercial Contract Law:

– UNIDROIT Principles of International Commercial Contracts 2010

– uniform rules of contract law

– govern international commercial contracts (not just sale of goods)

– apply when parties agree that their contract will be governed by them

Convention on Contracts for the International Sale of Goods (CISG):

– UN Convention on Contracts for the International Sale of Goods 1980

– international trade convention (treaty)

– provides global uniform legal rules for contracts for international sale of

goods

– has force of law in Victoria (displaces domestic law) – schedule to Goods Act

1958 (Vic)

When does CISG apply? Articles 1-6

Applies to contracts between private businesses (B2B) for the international sale of

goods:

– between parties with places of business in different countries that have

ratified CISG; or

– where rules of private international law (conflict of law rules) would apply

the law of a country that has ratified CISG as governing the contract; or

– where parties ‘opt in’ and choose CISG to apply (even if their businesses

aren’t in ratifying counties, e.g. by choosing the governing law of a country

that has ratified CISG).

84 Countries, including Australia, have ratified CISG. Other examples: New Zealand,

USA, China, Japan, and Germany (not United Kingdom)

When doesn’t CISG apply? Articles 1-6

not to domestic contracts for sale of goods (where both parties are in Australia),

which are governed by Australian domestic law (case law and Goods Act 1958 (Vic)).

not sales to consumers (B2C) (bought for personal, family or household use).

Contract A

not contracts for services (nor mixed contracts where main part of contract is for

labour / services).

not sales of certain specified types of excluded goods e.g.

– by auction

– stocks, shares or money

– ships, vessels, hovercraft or aircraft

– electricity

not when parties have agreed to exclude the operation of CISG.

What does CISG cover? Article 4

governs most aspects of contract law:

– formation of contract

– rights and obligations of seller and buyer arising from the contract

does not govern (left to domestic law):

– validity of a contract

– effect of contract on property of goods sold

How is CISG interpreted? Article 7(1)

CISG is to be interpreted with regard to its international character and the need to

promote uniformity in its application and the observance of good faith in

international trade

There is a body of legislative history, case law (from courts around the world),

scholarship and CISG Advisory Council opinions on the interpretation of CISG – and

courts may refer to them as aids in interpreting CISG

CISG is therefore to be interpreted “autonomously” – reference to domestic contract

law (cases and legislation) is not permissible

Elements of a contract

The question “Is there a contract?” requires the establishment of 4 material elements:

1. an agreement between the parties (often expressed as “offer” and

“acceptance”);

2. consideration (each party must give something in return for the other’s

promise);

3. an intention to create legal relations between the parties;

4. the agreement must be complete and certain (i.e., there should not be any doubt

as to exactly what each party is obliged to do in terms of the agreement).

Entered into by people with capacity to contract

Contract A

With some types of contract, certain formalities must be followed if the contract is to be

legally enforceable (e.g. some contracts must be in writing).

Agreement

The traditional approach to establishing Agreement is through Offer and Acceptance.

a) Offer – made by one party (the “Offeror”), and b) Acceptance – of the offer by the other party (the “Offeree”), which is then

communicated to the offeror, OR c) No identifiable offer and acceptance required, provided the parties have

manifested mutual assent and appear to have reached a concluded bargain (factual matrix – look at totality of facts)

– Agreement occurs when acceptance is communicated by the Offeree to the

Offeror.

– But there are limits to this approach and there may be Agreement without

Offer and Acceptance.

Offer

Indication by one person to another of his or her willingness to enter into a contract with

that other person on certain terms”

Q: What type of manifestation (statement or conduct) constitutes an offer? What if the

offeror’s outward manifestation is different from his or her actual intentions?

A: The courts use objective standard, i.e. the view of a reasonable person in the offeree’s

position

Bilateral v Unilateral contracts

Bilateral Contract Most contracts

2 parties to the contract (“A” and “B”)

Both parties exchange a promise or set of promises for each

to do something in the future (e.g. A promises to transfer

ownership of his car to B. In return, B promises to pay $100

to A)

Both A and B’s promises are executory (i.e. to be performed at some point after the contract is formed)

Both parties have their specific obligation and rights

Unilateral Contract

Typically reward scenarios

2 parties to the contract (“A” and “B”)

Only 1 promise is made (e.g. A promises to pay $100 to B if B

finds A’s lost puppy)

Contract A

B accepts A’s offer when B performs the stipulated task. Contract is formed when B completes performance. B is not obliged to perform, but A is obliged to pay when B has performed (no need to give notice of acceptance prior to performance). Thus, only one party has an obligation

Acceptance is shown by full performance; if revoked when

95% complete, then there is no contract as acceptance is not

complete

At time contract formed, A’s obligation/promise is executory

and B’s obligation has been executed (i.e. already

performed).

E.g. Carlill v Carbolic Smoke Ball; Mobil Oil v Wellcome

Multilateral contract

A contract between more than two parties. Most features of bilateral contracts apply, though there could be other special features as well

Gibson v Manchester Council (UK)

Facts: Gibson sought to enforce a terminated sale. Filled in application form and letter that

Council “may be prepared to sell…”

Held

Diplock J: “May be prepared to sell” and request for “formal application” make it impossible

to construe this letter as a firm contractual offer

– Merely equate to the council setting out the financial terms on which the council

may be prepared to consider a sale and purchase in due course – i.e. not an

invitation to accept the offer

– No reason to depart from conventional approach of identifying a clear offer and

acceptance (though refers to the possibility of exceptional types of contracts” “which

do not fit easily into the normal analysis of offer and acceptance”).

– Court of appeal (Denning) erred by departing from the conventional approach of

offer and acceptance: “look at the correspondence as a whole and at the conduct of

the parties and see therefrom whether the parties have come to agreement on

everything that was material”

Carlil v Carbolic Smoke Ball Co

Facts: “Carbolic Smoke Ball”, claimed to prevent colds and flu. Mrs Carlill used the smoke

ball as directed for four weeks, contracted the flu and claimed for the £100. Carbolic refused

to pay and Mrs Carlill sued for breach of contract.

Carbolic Co argued:

Contract A

Advert was not a promise (or offer); was mere puff (i.e. they did not intend to contract (or be bound)

– Held: Objective test: would it appear to a reasonable member of the public that an

offer was intended? Clearly an offer; not a puff (the £1000 deposit showed the

sincerity of the promise to pay in the certain event)

No offer can be made to the world at large (it was not made to anyone in particular):

– Held: It is possible to make offer to the public at large; although not made with

anybody in particular, contract is made with that limited portion of the public who

come forward and perform the condition on the faith of the advertisement.

Too vague and uncertain to be an offer - no time limit:

– Held: advert was not too vague or uncertain: time limit would be by reference to a

reasonable time

Mrs Carlill did not communicate acceptance:

– Held: acceptance occurs by performance. Acceptance need not be notified before performance; even if generally required to notify of acceptance, it is an exception if the person making the offer shows by his language and from the nature of the transaction that he notice of the acceptance is not required apart from notice of the performance

No consideration moved from Mrs Carlill

– Held: consideration was:

advantage to Carbolic gained by use of the ball to promote sales, and

detriment to Carlill in her inconvenience in using the ball

Problems with the offer and acceptance method

Ticket cases

Displayed goods with price tag in a shop

Advert for an auction

Invitation to submit tenders

Parties acting as though there is a contract, but no clear identification of ‘offer’ and ‘acceptance’

Offers distinguished from invitations to treat

Ticket cases

Usual approach: the ticket is an offer which the passenger can accept or reject after he or

she has had reasonable opportunity to accept or reject

Mac Robertson v Commissioner of State Tax

The airline’s passengers reserve a seat on flight, pay fare, and receive a ticket

Issue: Whether airline ticket is an agreement (for tax purposes)? Ticket contained conditions

giving the airline the right to cancel a flight or a booking without incurring any liability

Contract A

Held: Ticket did not record the terms of an agreement, but the terms of an offer which was

subsequently accepted by conduct

But reasoning differed:

Barwick CJ

Sweeping exemption and uncertainties of air travel left no room for obligation to

carry the passenger

Ticket merely an invitation to treat

Passenger makes the offer by presenting at the airport, and airline accepts by

carrying (i.e., no contract until passenger provided with a seat on airplane). The

ticket is a receipt of the prepaid fare.

Stephen J

“Conventional analysis” - ticket constitutes an offer by the airline capable of

acceptance or rejection by the passenger when he/she has had reasonable

opportunity to read the condition.

Thus ticket only records terms of an offer (not an agreement).

Invitations to Treat

Invitation to others to make an offer or enter into negotiations. Not an offer because lacks

sufficient indication of willingness to be bound.

Typical categories:

Most advertisements (e.g. catalogues)

• (but note non contractual implications – e.g. misleading and deceptive

conduct)

Goods displayed in shops (Boots)

Goods offered for sale online (Electronic Transactions Act s14B)

Property declared “on the market” at auctions (AGC v McWhirter)

Invitations to tender (Harvela, Hughes Aircraft)

Contract A

Categories of ITT Case Summary

Shop sales Pharmaceutical Society of Great Britain v Boots Cash Chemists

Facts: Court of Appeal to determine when a sale occurred in a self-service pharmacy in order to determine whether sales took place under the supervision of a registered pharmacist.

Issue: Does a customer picking up a bottle of medicine from a shelf amount to accepting an offer to sell? Held:

Goods displayed on the shelves merely an ITT

A customer picking up a bottle of medicine from a shelf is merely an offer by the customer to buy, not an acceptance of an offer to sell.

No sale is effected until the buyer’s offer to buy is accepted at the checkout

Customers are entitled to return and substitute articles they have chosen from the shelves; and thus, customers are regarded as making an offer when they present the items to the cashier and are not bound until the cashier has accepted that offer.

Auctions AGC v McWhirter Is it an offer when the auctioneer says a property is “on the market”, or advertised for auction “without reserve”?

General rule is that (whether or not auction is “without reserve”): – the auction is an invitation to treat; – the bid is the offer; and – the offer is accepted by the auctioneer’s “fall of the hammer”. – AGC v McWhirter (1977 NSWSC)

This means that: – the seller can withdraw the property before acceptance of a bid; – the seller can refuse to accept a bid (doesn’t have to sell to the highest bidder); and – the buyer can withdraw a bid before acceptance.

Facts: Mortgagee auction - vendor (mortgagee) able to reject highest bid from mortgagor. Vendor had not made an offer to sell despite auctioneer declaring that property was “on the market” (only an ITT) Held: An auction held without reserve does not alter the general rule and does not constitute an offer or bind the vendor to sell to the highest bidder

Contract A

3rd category: Tenders

Used by prospective purchasers of goods or services to assess potential suppliers

May be used for the sale of commercial or residential property

Often used by governments contracting out public services

The general rule is:

– request for tenders is an invitation to treat;

– tender is the offer

But, there are exceptions

Sometimes the call for tenders may be an offer: Harvela Investments Ltd v Royal

Trust Co of Canada

Sometimes the call for tenders will create a contract re: tender process

Hughes Aircraft Systems International v Airservices Australia

Harvela Investments Ltd v Royal Trust Co

– RT: “we bind ourselves to accept” the highest offer for our shares. Vendor’s promise

to accept the highest bid converted an otherwise invitation to treat into an offer

– H accepted the offer by making the highest fixed price bid – a unilateral contract was

formed.

– O’s referential bid “$X in excess of any other offer” was invalid”, because the

specification of the invitation to submit tenders implied no referential bids.

Hughes Aircraft Systems International v Airservices Australia

– Final two tenderers for acquisition of Air Traffic Control System signed letter setting out

assessment criteria for the tender process. CAA deviated from the assessment criteria.

– H argued letter and offer created contractual relationship that obliged it to use the

agreed assessment criteria.

Held: – A tender process contract came into force when the tender was lodged. CAA had

breached the tender process contract. – In certain circumstances, a mere request for tender ("RFT") for a main contract may give

rise to a legally binding agreement. – Where the party issuing the RFT is a public body, an implied obligation arises, requiring it

to "deal fairly" with all the tenderers and conduct the tender assessment in accordance with its agreed criteria.

There were 2 valid tender process contracts governing the tender process.

– CAA letter describing tender process and evaluation criteria (offer: not invitation

to treat) – accepted by Hughes signing

Contract A

– Formal request for tenders with similar terms (offer), accepted by Hughes

lodging its tender

Termination of an offer

Revocation of offer by offeror

Lapse of time: if no time prescribed after a reasonable time

Death of offeror

Failure of a condition/change of circumstances

Rejection by offeree: rejection must be communicated

1. Withdrawal or Revocation

Can occur at any time before acceptance, (even if the offeror promised to keep it

open)

Effective when it reaches (i.e. communicated to) the offeree

Communication by whom? By what means may revocation be communicated?

Dickinson v Dodds (1876) 2 Ch D 463 (not on Reading Guide)

Held: Communication of the withdrawal of the offer can be made by any reliable third

party. Option must have consideration to be binding.

Exceptions:

– If consideration has been paid to keep the offer open – options – Goldsborough

Mort

– If there is a promise to hold an offer for the international sale of goods open (CISG,

Article 16)

– If a unilateral contract, performance (acceptance) has commenced, and there is an

implied contract not to revoke or an estoppel – Mobil Oil

Options: Goldsborough Mort v Quinn

Facts: Goldsborough paid for the right to purchase land within a week. Quinn purported to

revoke the offer. Goldsbrough accepted within the week and sought specific performance

Held: Offeree paid for the option to have one week to consider the offer. There was a

contract to sell the land subject to a condition (ie exercise of the option).

The offeror cannot withdraw before the expiration of the promised period. An option

contract (a promise to keep an offer open, for value) is binding, and specific performance

can be given.

Unilateral Contracts

Generally, a unilateral offer can be revoked before acceptance (even where offeree

has begun performance), unless there is:

Contract A

– an implied contract not to revoke

– estoppel

Mobil Oil v Wellcome

Facts: Announcement by Mobil to franchisees that if scored >90% in Circle of Excellence

program for 6 years - entitled to 9 free extra years on franchise. Plaintiff proceeded to get

such scores but offer revoked after 4 years and program cancelled

Held FFC:

No offer - statement too vague and uncertain to be a contractual obligation

Even if it were an offer, Mobil can revoke unilateral offer even if performance has

commenced (no general proposition that an offeror can’t revoke the offer once the

offeree commences performance)

But there may be times where there is an implied ancillary contract not to revoke

the offer once the offeree commences performance (in which case revocation is still

effective and offeror is liable to pay damages for breach of ancillary contract).

No such implied ancillary contract here because:

“commencing” performance is too vague – after one day?

the franchisees did not suffer any substantial detriment

the franchisees were already bound to adhere to Mobil franchisee standards

CISG: Revocation of offer (Article 16)

Offer may be revoked before contract concluded if revocation reaches the offeree

before acceptance.

However, offer cannot be revoked:

– if it indicates that it is irrevocable (eg by stating fixed time for acceptance); or

– if it was reasonable for offeree to rely on the offer as being irrevocable and

offeree has acted in reliance on the offer.

2. Lapse of Time

Offer may be open for specified period – will lapse at end of specified time

If no period specified – will lapse after a “reasonable time”

What is “reasonable” will depend on the context – apply objective test

(depends on the nature of the transaction; circumstances might suggest

what is a reasonable time frame)

3. Death of offeror

Offer will lapse on death of Offeror:

On notice of death - Fong v Cilli (1968)

– An offeree cannot accept an offer after the offeror’s death if he knew of the

death before the purported acceptance. Death of offeror lapsed the offer.

Contract A

– Implication that an offer may still be accepted before notice unless personal

services required.

Option contracts remain enforceable against deceased estate. The death of the

Option Holder does not terminate the offer, and the option may be exercised by the

representatives of his estate unless:

– Personal services of deceased required (i.e. contract requires exercise of

personal skill and judgment); or

– Intent of option was that it not be exercisable after death (Laybutt v Amoco

Australia Pty Ltd): Notice of exercise of the option was not correctly served

and was therefore not enforceable against the deceased vendor’s widow.

4. Failure of condition and changed circumstances

The offeror may stipulate circumstances in which an offer will stay open or lapse

(e.g. offer subject to board approval) – may be express or implied

If the offeror does not do so expressly, it may still be obvious to an objective

observer that the offer was made on the basis of certain circumstances. It may be

that if these circumstances change, that the offer lapses.

Not every change in circumstances will cause the offer to lapse;

– Implied condition that an offer will lapse only on a fundamental change

in the circumstances (Dysart)

– Look at offer as a unilateral transaction; focus on the objective intention

of the offeror having regard to the terms of the offer and the

circumstances in which it was made

– This is a high test, and a fundamental change is rare

Dysart Timbers Limited v Nielsen

Facts: N offered $250k to settle a dispute with D. D accepted the $250k, but then the court

granted N leave to appeal and N changed its mind, deciding to continue with the appeal.

Issue: Was the grant of leave such a fundamental change in circumstances that it killed the

offer?

Held: Offer still subsisted at the time Dysart accepted even despite the change in

circumstance, and thus $250k to be paid

– There was no a fundamental change in circumstances

– Hence, offer did not lapse and there was a contract

– Both parties knew Court might decide leave application

– Nielsen could have expressly provided that the offer would terminate if leave

application decided

– The high test was not met

5. Rejection & Counter Offer

Contract A

Once an offer has been rejected it is no longer available for acceptance (rejection

kills the offer)

A counter offer is a rejection of the initial offer and results in a new offer (I’ll pay

$X instead)

A “mere inquiry” is neither a counter offer nor a rejection (e.g. – “is there room

for movement on the price?”, “would you accept $X?”)

- Stevenson, Jaques & Co v McLean

However, a rejected offer may in all the circumstances be treated as remaining

open and available for acceptance on the basis of mutual assent manifested by

conduct (per Heydon J, Brambles)

Stevenson, Jacques & Co v McLean

Facts: M offered to sell iron to S for 40s per ton, offer open till Monday. Monday – S asked

whether M would “accept forty for delivery over two months, or if not, longest limit you

would allow”. M didn’t answer and sold the iron to someone else. S later sent a telegram

accepting the offer.

Issue: Was S’s enquiry a counter-offer to the effect that it had extinguished M’s original

offer?

Held: Neither a rejection of the offer nor a counter-offer; it was a mere inquiry. Although M

could revoke the offer, it had not done so and was still open and was accepted. M breached

contract to sell to S.

CISG: Rejection and counter-offer Article 19

A reply to an offer which purports to be an acceptance but contains additions,

limitations or other modifications is a rejection of the offer and constitutes a

counter-offer.

However, a reply to an offer which purports to be an acceptance but contains

additional or different terms which do not materially alter the terms of the offer

constitutes an acceptance, unless the offeror, without undue delay, objects orally to

the discrepancy or dispatches a notice to that effect. If he does not so object, the

terms of the contract are the terms of the offer with the modifications contained in

the acceptance.

Additional or different terms relating, among other things, to the price, payment,

quality and quantity of the goods, place and time of delivery, extent of one party's

liability to the other or the settlement of disputes are considered to alter the terms

of the offer materially.

Offer – what you need to know