Contract-A-Summary - Summary Introduction to Contract Law PDF

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Contract-A-Summary - Summary Introduction to Contract Law...

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FORMATION Agreement 

Gibson v Manchester – Identify offer and acceptance, conventional approach.

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Bilateral or unilateral

Offer 

Person indicating to another willingness to enter into contract on certain terms.

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Objective approach – What would reasonable person think (Carlill v Carbolic Smoke Ball Co)

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Invitation to treat NOT an offer. o Store cases – Customer is offeror, shop gives ITT (Boots Cash). o Tenders and Auctions – Auctioneer invites bids/offers (AGC v McWhirter). 

Exceptions: Fixed price tender to highest bidder is offer by auctioneer (Harvela).

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Tender process promising fair consideration means bid must be reviewed (though not necessarily accepted – Blackpool; Hughes).

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Ticket cases (MacRobertson – Also illustrates issues with conventional approach) o Barwick CJ – Unilateral contract, passenger makes offer and accepted by airline once flight completed. o Stephen J – Ticket at airport offer, passenger to accept/reject.

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Termination of offer – How to do 1. Withdraw anytime before acceptance (Financings Ltd v Stimson), unless option agreement (Goldsborough Mort). 2. Lapse before accept – After time limit/reasonable time, also if offeror dies (Fong v Cili). 3. Condition not satisfied if conditional offer (Stimson – car not in original condition; Hewens – joint vendor wouldn’t sign contract; Laybutt – Contract depended on skill/expertise of deceased). 4. Rejection – express, counter-offer (mere inquiry not rejection though). 5. Unilateral cases: Offeror can terminate offer midway through offeree’s performance, though estoppel option if unjust termination (Mobil v Wellcome).

Acceptance 

Unqualified assent to terms of the offer.

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Objective approach – Toll v Alphapharm; Taylor v Johnson (Obj has ‘command’ in field) o Outward manifestation of parties conduct important (Taylor) o Signing contract implies acceptance from obj view (Fitness First v Chong)

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Subjective approach – irrelevant to acceptance (Smith v Hughes; Fitness First) o Equity can intervene (Taylor) o Has been used in past when acceptance not in reliance of offer (Crown v Clarke)

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Communication of acceptance – Offer not accepted until acceptance received by offeror (Latec Finance v Knight; Felthouse v Bindley; Brinkibon) o Silence not acceptance (Felthouse), unless conduct shows otherwise (Empirnall). o Exceptions: (i) Unilateral contracts; (ii) postal rule; (iii) offer expressly/impliedly provides acceptance to be comm’d in certain way and clear language present to support this view (Latec).

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Method of communication – Oral/writing best. o Postal rule too, but issues. Parties must contemplate and intend mailing to be appropriate communication (Tallerman). o Telex/phone/other instantaneous comms not covered by postal rule (Brinkibon; Reese Bros). o Electronic Transactions Act (Vic) has own rules:

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s 1: information system (IS) means a system for generating, sending, receiving, storing or otherwise processing electronic communications;

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s 13: (1) Once email leaves IS into another, is comm’d to offeror.

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(2) If email leaves work server then bounces to Europe and back, dispatch moment is still once it leaves your IS.

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(3) If offeror asks to send acceptance to [email protected], comms only occurs when email enters Bigpond servers.

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Correspondence between offer and acceptance – Battle of forms (Butler Machine Tool) o Conventional approach, Lawton CJ & majority – Buyers’ acceptance counter-offer which seller agreed to (i.e. whoever got in last has their terms agreed to). o Synthesis approach, Lord Denning – Look at all documents to ascertain terms.

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If agreement not clear and conventional approach won’t work, see Brambles: o In all circumstances can agreement be inferred? Mutual assent manifested? Would reasonable person think there was a concluded bargain? 2

Consideration 

Price paid for promisor’s promise (Beaton v McDivett).

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2 Elements: o Bargain/Quid Pro Quo – Price for promise must be in return for promise (Australian Woollen Mills; Beaton v McDivett). o Detriment to promisee/benefit to promisor – something of value/significance, dependent on case facts.  Ballantyne: Menzies J – Admitting no claim not consideration. Dixon CJ – Even ‘slight’ claims can be consideration, as it is something.  Beaton v McDivett: Kirby P – Consideration was ‘illusory’.

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Adequate vs sufficient consideration o Adequate not relevant as too subjective for courts to evaluate (Woolworths v Kelly). o Sufficient if something of value given (Thomas v Thomas).

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Past consideration not adequate consideration (Roscorla v Thomas) o Exception if promise to pay for past service (Lampleigh v Brathwait; Ipex v Hosking)

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Existing legal duty not adequate consideration (Stilk v Myrick); however, 5 exceptions: 1. Fresh consideration given/something more given (Hartley v Ponsonby) 2. Practical benefit by promisee 

6 stage test from Williams v Roffey Bros (criticised as too broad): a. If A enters into contract with B to work/perform in return for payment; and b. There are doubts that A will complete his obligation; and c. B promises further payment for A to complete obligations on time; and d. As a result, B obtains in practice a benefit or obviates disbenefit; and e. B’s promise not forced by economic duress/fraud from A; then f. A has provided a benefit to B, so consideration, and so legally binding.

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Re Selectmove Ltd – Doesn’t extend to part payment of debt cases.

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Musumeci v Winadell modified test: c. Includes modifying party making a concession, such as reducing an original obligation. d. A’s performance is worth more to B than any likely remedy against A. e. B’s promise not given under influence or unconscionable conduct on A’s part.

3. Promise to perform existing legal duty made to third party (Pan On) 4. Bona fide compromise to resolve legal dispute (Wigan v Edwards). 5. Terminate and replace original contract. 

Part payment of debt not consideration until whole debt paid off (Foakes v Beer). 3

Intention to Create Legal Relations 

Objective approach used (Ermogenous). o Assess state of affairs between parties, not uncommunicated motives (Ermogenous). o More like to be intention if: subject matter important, documents comprehensive, time/commitment elements, business-like content, fees/costs paid, parties at arms length (Shahid for student/academic context). o If money paid in consideration, intention quite clear (Shahid). o Subjective intentions may be used if same as other party/other party aware of them (Air Great Lakes).

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Presumptions o Not abolished, for non-comm disputes more for burden of proof and each case on own facts (Ermogenous). o Commercial arrangements – Intention presumed (Banque Brussels), but can be rebutted if statement of promises unclear and party alleging contract can demonstrate one exists (Kleinwort Benson Ltd v Malaysia Mining). o Social/Domestic – Intention not presumed (Balfour v Balfour), but: 

Can be rebutted regarding case facts (Salmon LJ in Jones v Padavatton).

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Intention may be present if onerous consideration (Todd v Nicol).

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Rebuttable if commercial interest present (Roufos v Brewster).

o Government – Policy not usually considered a contract, thus no intention (Leahy). 

Particularly so if (i) no statutory authority sought for making of payments, (ii) announcement done by person who have no power to commit Crown to expenditure, (iii) Cth has no commercial interest in the promise, and (iv) Cth expressly states it can change conditions as it pleases.

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Language used/commercial character of document can suggest intention present (Windeyer J, dissenting, in Placer Developments Ltd v Commonwealth).

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Preliminary Agreements o 3 categories, 2 enforceable, one not (Masters v Cameron): 1) Parties have reached finality, but want to state terms in a more full and formal manner – enforceable 2) Parties completely agreed on terms, but one or more terms conditional on execution of formal document – enforceable 3) Parties have intended not to make concluded bargain until formal contract made, use of qualifications like ‘subject to…’ – unenforceable 4

o 4th category: Parties bound to terms agreed, with later contract to be made which substitutes the first contract with additional terms – enforceable (Baulkham Hills). o Work out which category by reviewing the use of language by parties (Masters).

Certainty Completeness 

All essential terms finalised or no contract can be formed. o Essential terms include price, parties, subject matter. o Nature of contract and circumstances to be determined what is ‘essential’ (ANZ v Frost Holdings Pty Ltd). o Courts won’t fill essential terms if complex case (Milne v Attorney-General (Tas)), but ‘reasonable price’ can sometimes be determined (e.g. Goods under s 13 Goods Act 1958 (Vic)).

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Agreements to agree o If agreement on express term deferred, contract unenforceable (May and Butcher Ltd v The King). o Exceptions: 

Parties already partly performed contract/acted on assumption one exists (Foley v Classique Coaches Ltd).

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Can use arbitrator/third party or legislation to sort it out, but if mechanism fails then contract void (George v Roach; s 14 Goods Act).

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Certainty of meaning – if term too vague then contact void for uncertainty. o Courts won’t take narrow/pedantic approach, especially for commercial arrangements (Upper Hunter Council – ‘supplier costs’ can be worked out by court). o If parties agree to “fair/reasonable/equitable” terms: 

These words are inherently uncertain, and so:

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Must be ascertainable and in common use (Whitlock v Brew); or

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If price/value, needs external standard to fix it (Hall v Busst; Biotech v Pace).

o Negotiate in good faith/mediate sufficiently certain terms to be enforceable (Coal Cliff Colieries; Aiton Australia). 

Illusory Promises – If promisor has unfettered discretion then no contract (Placer Developments; Biotech v Pace). o Exceptions:

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o If discretion involves completing a condition in order to actually start the contract (e.g. get finance in order to pay for property, then Placer does not apply (Meehan v Jones). o Unfettered discretion sometimes not so – obligation to act honestly/reasonably (Mason J, Meehan v Jones). o Not illusory to add further terms if courts can impose requirement that terms are ‘reasonable’ (Godecke v Kirwan). o Implied terms of good faith may restrict any discretionary contractual power (see Implied terms). 

Consequences of uncertainty: o Three options: 1) Agreement void – usually if essential term omitted and court can’t/won’t supply replacement terms. 2) Ineffective term severed from agreement – if term not essential, it can be inferred that valid agreement would remain without that term a. Fitzgerald v Masters – ineffective clause severable because simply appendage to agreement as a whole. b. Whitlock v Brew – Based on facts no agreement would have occurred without term, so contract void. 3) Ineffective term waivered by party receiving benefit a. Bradford v Zahra

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Privity 

Essentially, a person not party to a contract can’t enforce it, or incur obligations. To be part of a contract party must enter into an agreement and provide consideration. o Coulls – Even though thid party signed contract, no consideration was given and so privity rule applied preventing her enforcing contract.

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Circumventing privity (beneficiary): o Privity doesn’t apply to insurance contracts, which confer benefits on the insured party’s contractors (Trident v McNiece). o If a ‘letter of comfort’ present where one party promises to financially support a related third party (Gate Gourmet). o Analysing parties’ legal relationships in a way to allow third party to part of the contract (The New York Star). 4 point test:  the bill of lading made it clear that the carrier intended by its terms to protect the stevedore;  the carrier by the bill contracted for the stevedore’s protection as well as for his own;  the authority of the carrier to act for the stevedore in this respect whether antecedently or by ratification was made out; and  there was consideration moving from the stevedore.

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Circumventing privity (promisee): o Because promisee does not receive benefit, only nominal damages can be awarded (Beswick v Beswick). o Best option is to try and obtain an order for specific performance.

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Alternative courses of action for aggrieved party: o Unjust enrichment (Gaudron J, Trident). o Law of trusts, where B holds benefit of A’s promise on trust for C (Deane J, Trident). o Tort of negligence (Hill v Van Erp – duty of care owed by solicitor to will beneficiary). o Estoppel. o Statutory rights of action (misleading/deceptive conduct, s 52 Trade Practices Act 1974)

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Formalities 

Common law doesn’t require contracts in writing. Exceptions in s 126 Instruments Act 1958, successor to Statute of Frauds.

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The following contracts must be (i) in writing, or (ii) memo/note of agreement in writing, and signed by party to be charged (sued). If not, they are unenforceable: o Contracts of guarantee o Sale or disposition of land.

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Guarantees: A promise to pay another’s debt if they default. Different from indemnity, a promise to prevent a person suffering loss from transaction.

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Sale of land contracts – 5 elements. Documents: o Must contain all essential terms depending on contract type (Pirie v Saunders). o Must be made after agreement made (earlier indicates possibility of agreement).  Exception: Written offer by one party, verbally accepted by other. Once offer verbally accepted, effectively agreement in writing. o Must be signed – liberal interpretation. Instruments Act allows emails to be signatures in accordance with Electronic Transactions Act s 9(1).  9(1) Counts as signed if (a) method used to ID person and their approval of info comm’d, (b) the method was reliable in the circumstances, and (c) the person receiving signature consents to this method.  Whole document can be electronic, according to IA s 126. o Can be joined together if (i) they are physically connected, or (ii) one doc refers to another one. If court unsure, can ask for oral evidence (Tonitto v Bassal).

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Non-compliance consequences – contract unenforceable. Not void though - therefore equity can be used to enforce rights o Part-performance of agreement allows court to order specific performance. Two tests:  Narrow - Acts must be unequivocally referable to an agreement (Maddison v Alderson). Adopted in Ogilvie v Ryan.  Broad – Acts considered in circumstances and decided on balance (Steadman v Steadman). o Constructive trust (Ogilvie). o Estoppel.

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Express Terms Basically is something expressly stated in words by one or more parties, in writing or orally. Promissory statements are binding, but representations are not.

Identifying express terms 

They may be: o In one contract document with entire agreement clause and formally executed by parties (See Parol Evidence Rule). o Derived from number of oral/written statements made by parties during negotiations or displayed on one party’s signs/notices/tickets/etc. o Derived from statements made during negotiations (see below).

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Negotiation statements: o If PER applies, can’t rely on statements as contractual terms. o If not, statement must be promissory having regard to:  Language used in statement: o Expression of opinion/conditional language is only representational (JJ Savage; Oscar Chess).  Relative expertise of parties: o Expert statement to non-expert probably promissory (Dick Bentley; Smythe v Thomas). o Non-expert statement to expert less promissory (Oscar Chess). o Objective bystander must be in position of parties (Smythe v Thomas).  Importance of statement: o If statement highly important in transaction then more likely to be promissory (Van den Esschert; Smythe).  Timing of statement: o If request occurs closer to contract signing, more likely to be promissory (Van den Esschert).

 Form of written part of contract: o Regardless of PER, if written agreements dominate it is harder to argue that oral statements promissory, as written info easier to assess objectively cf oral (Equuscorp).

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 Any other relevant circumstances – ultimately court must be satisfied that reasonable person in parties’ position would consider statement to be a contractual promise (Gibbs CJ, dissenting in Hospital Products).

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Written terms and effect of signature. o Generally, party bound by contract terms if signs contract (L’Estrange v Graucob; Fitness First v Chong; Toll v Alphapharm). o General rule applies to internet transactions (eBay v Creative Festival Entertainment). o Exceptions: not bound if it’s not reasonable to consider document a contract, or if signature obtained by fraud/mistake/duress/unconscionable conduct (Curtis).

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Written terms incorporated by notice. o Where not signed contract, goods/service supplier may use sign/advert/brochure/ticket/receipt/docket to list terms and conditions. o Two essential issues to consider – Time and knowledge/reasonable notice. o Timing (Oceanic Sun Line)

 Terms must be available to other party before contract signed, and;  Party must have reasonable time to read them, otherwise can’t be incorporated as terms. o Knowledge

 If party actually knows document/sign displayed contains contractual terms, party bound by terms (Parker v South Eastern Railway).

 Also bound if circumstances suggest that reasonable notice given (Parker).  If terms not in document reasonably considered ‘contractual’ in nature, party seeking to incorporate must take reasonable step to bring notice to the other party (Causer v Browne; Thornton v Shoe Lane Parking).

 If terms onerous/unusual, party enforcing must take special steps to notify (Interfoto v Stiletto; The Mikhail Lermontov). o NOTE: Only relevant to unsigned documents. Signed documents generally mean signatory bound by terms (Toll v Alphapharm).

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Written terms incorporated by course of dealings o Terms of earlier contract can be incorporated into later contract if:  Regular and uniform dealing between parties (Balmain New Ferry v Robertson).  Doc relied on reasonably capable of being contract document (Rinaldi).

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Construing express terms 

Court must determine exactly what terms mean once identified.

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Guiding principles (ABC v APRA): o Objectively give effect to parties’ intentions. o What would reasonable person think term means? o If words are unambiguous court will accept their meaning even if it produces an unreasonable/unfair result. o If language open to two constructions:  Court may regard ‘factual matrix’ (surrounding circumstances, though note PER)  And will favour the construction which give a reasonable commercial result.

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Special case of exclusion clauses (reduce/excl...