Contract Exam Topic Summaries PDF

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Contract Exam Topic Summaries........................................................................................ Table of Contents Contract Exam Topic Summaries........................................................................................ Table of Contents OFFER AND ACCEPTANCE...........

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Contract Exam Topic Summaries

Table of Contents Contract Exam Topic Summaries........................................................................................1 OFFER AND ACCEPTANCE...................................................................................................2 CERTAINTY.........................................................................................................................4 INTENTION TO CREATE LEGAL RELATIONS...........................................................................6 CAPACITY...........................................................................................................................8 EXPLOITATION: UNDUE INFLUENCE..................................................................................10 EXPLOITATION: UNCONSCIONABLE BARGAINS..................................................................13 CONSIDERATION..............................................................................................................15 EXPLOITATION: ECONOMIC DURESS..................................................................................22 DAMAGES........................................................................................................................24 EXEMPTION AND EXCLUSION CLAUSES.............................................................................28 CANCELLATION.................................................................................................................30 FRUSTRATION..................................................................................................................34

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OFFER AND ACCEPTANCE  

Offer and acceptance is the traditional approach to contract formation The overarching question: is there a contract?

1) Is there a valid OFFER?  

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Carlill and Boots Cash Chemist – an offer is a definite promise to be bound, provided that certain terms and conditions are accepted. Carlill – An offer made to the world through advertisement – An offer can be made to the world dependent on the wording of the advertisement. Acceptance will be made if an individual acts on the conditions provided in the ad. A. Invitations to Treat Carlill and Boots Cash Chemist – an invitation to treat is an invitation to receive a legally binding offer and NOT an offer to form a contract.” – (The courts will consider whether there is both an indication of a willingness to undertake legal liability on defined terms and a sufficiently clear indication of the terms of the prospective conduct. In the absence of either, a statement is an ITT, not an offer). Puffs Carlill – Statements seeking to induce contract but which are so far-fetched no reasonable person would believe them. Display of goods Boots Cash Chemist states that display of goods at a store is an invitation to treat not an offer. The offer is established when the customer takes the item off the shelf and offers to purchase the item at the cash register. Advertisements Partridge established that advertisements are generally treated as ITT’s, however, Carlill distinguishes an offer from an invitation to treat in which “there is no offer to be bound by any contract.” These include types of advertisements that are “offers to negotiate, offers to receive offers, offers to chaffer.” Wording of agreements/Requests for info Scancarriers established that the telex was merely a quote, not an offer as it did not include sufficient enough terms. Furthermore, the courts in Boulder held there was an ITT as the compliments slip was not definite enough to amount to an offer. Harvey established that providing a minimum price was not an offer but ITT as it was an indication of how much the D’s were willing to sell for, if they chose to sell. Tenders Calls for tenders are not offers unless they clearly indicate that the highest or lowest tender will be accepted. The submitted tender is usually the offer. B. Global Approach Boulder – NZ courts may use the global/objective approach if the traditional approach is inappropriate; Whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.

2) Has the offer TERMINATED? 

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Revocation Payne v Cave established that revocation is possible and effective at any time before acceptance: up to this moment no legal obligation exists. Nor is it relevant that the

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offeror has declared a readiness to keep the offer open for a given period. A revocation of an offer is ineffective unless it has been communicated to the offeree. However, Dickinson established that the offeror need not personally have furnished this information (ie. A third party could provide this information to the former offeree). Lapse of Time If an offer states that it is open for acceptance until a certain day, a later acceptance will clearly be ineffective (express). Kean v Dunfoy - An offer is usually only open for a “reasonable time” which will depend on the nature of the transaction, the conduct of the parties subsequent to the making of the offer, and in the case of an offer contained in an option, the nature of the consideration for the option. Change of circumstances Nielsen v Dysart established that the courts may consider a possible lapse of an offer as a result of a change of circumstances. Failed Condition Financings Ltd – an offer may be conditional and not absolute; and if the condition fails to be satisfied, the offer will not be capable of acceptance. The “so-called” agreement was an offer, however, it was subject to the implied condition that the car remained, until the moment of acceptance, in substantially the same state as at the moment of offer. Death of Offeror The effect that death of the offeror has on the offer, depends on the nature of the particular transaction.

3) Is there valid ACCEPTANCE?     

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Boulder and Reporoa – an offeree must assent unconditionally to the exact terms of the offer. Acceptance – a final and unqualified assent to the terms of an offer. May be verbal, written or by conduct Must be made in the manner specified or indicated by the offeror. A. Knowledge of Offer An acceptance must be made in reliance on the offer. Therefore, an offer cannot be accepted unless the acceptor is aware of its existence and its terms. Cross offers When parties forward identical offers to one another at the same time. Two offers but no acceptances. Tinn v Hoffman established that no contract would be concluded. B. Mere Inquiry/Request for further info (not counter-offer) Powierza established that the line between rejecting an offer and merely inquiring as to a possible variation can be a fine one. The basic test is the effect on a reasonable person in the shoes of the offeror. Conditional Acceptance If the offer was made subject to some condition, the inclusion of that same condition in the acceptance does not prevent a contract coming into existence when the condition is fulfilled. These are usually considered counteroffers, but the offeree must act reasonably when re-evaluating the bargain. C. Counter-Offer

 Hyde v Wrench and Butler Machine Tool Company – If, while purporting to accept the offer as a whole, the offeree insists on an entirely new term, this is a counter offer. The effect of this is to destroy the original offer.

4) Has the acceptance been COMMUNICATED?  Eliason v Henshaw – The general rule is that acceptance must be communicated to the

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offeror. If the offeror specifically required acceptance in a certain way; then acceptance must: be given in that particular way; or by another method which is as quick or quicker. A. Acceptance by Conduct Brogden and Savvy Vineyards established whether there is an absence of express/explicit acceptance of an offer, the party can still accept an offer by carrying out the terms & conditions of the contract. Whether there is an appearance of mutual agreement – inferred from writing, words or conduct. Postal rule Adams – where acceptance is made by post, the contract is completed the moment the acceptance letter is posted. (Only where no mode of acceptance is prescribed – this is an exception to the general rule). Silence rule Felthouse – an offeror cannot stipulate that silence will be acceptance. Waiver Carlill – If the person making the offer expressly or impliedly intimates in the offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification.

CERTAINTY 

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Wellington City Council v Body Corp – Any agreement which is to have contractual force must be in terms which define with a sufficient degree of certainty the obligations which the parties are to undertake. It follows that for there to be an enforceable contract, the parties must have reached consensus on all essential terms; or at least upon objective means of sufficient certainty by which those terms may be determined. Often, people making contracts do not know the law. A term that gives ‘flexibility’ (eg. At a price to be agreed may be regarded as meaningless or uncertain by the courts). The courts will allow the parties to an agreement very considerable latitude to create effective but flexible arrangements. Fletcher Challenge – No contract had been concluded because the parties had not at any time intended that the Heads of Agreement constitute a concluded contract. The Court was not therefore required to decide whether the particular matters not settled by the document would have meant that the agreement was too uncertain to be enforced as a contract. o HOA was not binding – appeared incomplete, no machinery clause, no identification of which terms were essential. The intention of the parties, as discerned by the court, to be bound or not to be bound should be paramount.

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o Where the intention to contract is found to have existed, the court may supply an omission by implying a term. o “Heads of Agreement” There is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter so-called HoA. Prerequisites to formation of contract: (Fletcher Challenge) o An intention to be immediately bound (at the point when the bargain is said to have been agreed); and o An agreement, express or implied, or the means of achieving an agreement (eg. An arbitration clause), on every term which  Was legally essential to the formation of such a bargain; or  Was regarded by the parties themselves as essential to their particular bargain.

1) Were any disputed agreements intended by the parties to have contractual force?  

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Normally be apparent by scrutinising any document setting out the terms of the agreement. The courts may also have regard to the circumstances of the transaction, behaviour of the parties after any agreement was concluded and to evidence from the parties themselves as to their intentions. Fletcher Challenge – the courts will do their best to give effect to that contractual intention by finding ways to remove, or reduce to a tolerable level, any uncertainty in, or arising from, the terms of the agreement.

2) Are the essential terms clear? 

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Courts will uphold a common contractual intention embodied in an agreement despite the absence of provision as to some matters, or of ambiguous or uncertain wording if the nature of the obligations intended to be assumed can be established and given effect. Scammell v Ousten – Language obscure and incapable of any definite or precise meaning. The parties never got beyond negotiations. No concluded agreement could be determined when the parties had agreed that a motor vehicle was to be sold “on hire purchase terms”. Several forms of hire purchase, with quite different legal effects, and the parties had never indicated which form they had in mind. Fletcher Challenge – The court will say there is a contract and try to give the term meaning looking to parties’ intentions. If one party maintains that there must be agreement upon it = essential term. o Outcome: term can be disregarded or severed. o “We take the view that this case [May & Butcher] is no longer to be regarded as authority for any wider proposition than that an ‘agreement’ which omits an essential term... or means of determining such a term does not amount to a contract. The intention of the parties is paramount.”

3) Can the essential terms be ascertained? 

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Hillas v Arcos – Customs and trade usage – ie. courts determining what was mean by timber of “fair specification”; implied terms – an apparently insufficiently defined

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obligation may be made clear by the implication of terms into the agreement, whether those be as to such matters as delivery dates for goods, or the nature of “suitable” mortgage finance. Fletcher Challenge – Care must be taken in such cases that the court does not create a contractual nexus where none was intended by a process of considering each possible implied term in isolation from terms sought to be implied in relation to other matters. The use of machinery provisions to provide certainty in apparently uncertain agreement. Objective means – o AG v Barker (arbitration clause) – A machinery provision, such as the submission of a dispute to arbitration, can be used to resolve matters which the parties had apparently left to be decided between themselves. o The courts held that it was possible to use a widely drafted arbitration clause to provide a mechanism for determining a rent which the parties had left for later agreement between themselves. Depends on the terminology. o Money v Ven Lu Ree (valuers – no explicit mechanism of arbitration) – The court upheld the HC’s decision to refer the matter to arbitration. However, the court did say that even if the matter was not subject to arbitration, the agreement to sell at valuation was certain enough (from implication) that the Court itself could have decided on the valuation.

INTENTION TO CREATE LEGAL RELATIONS  Second element to contract formation.  Overarching Q: Was the arrangement between the parties intended to be legally bound  

by contract? This is objectively ascertained. Two types of agreements: domestic and commercial.

1) Was this a DOMESTIC AGREEMENT?  

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Agreements made between family members, close friends or made on a social occasion. Courts will carefully examine the facts to determine whether parties intended to create legal rights and obligations, or whether they intended to rely on famiy ties of mutual trust and affection. Fleming – There is no presumption that there is an intention to create legal relations between family members. Intention is ascertained from a careful examination of the facts. A. Agreements between couples The law will, in appropriate cases, recognise contracts between spouses or domestic partners where the nature of the agreement and the circumstances in which it was entered into indicate each party had a clear intention to be bound. Fleming – It’s the P’s job to satisfy to the court on the balance of probabilities (51% more likely than not) that they intend to be legally bound. There was an intention from Mr B that he wanted to change his will before his death – he stated this to Miss F and in front of her lawyer (evidence). They were acting as individuals which can be taken from the structure of the transaction (both buying halves of the property). There was insufficient

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evidence, however, to suggest that the promise over the piano intended to give rise to legal relations. Balfour – Many cases between spouses will not amount to a contract because the parties did not intend that they should be attended by legal consequences. Merrit – Courts are more ready to discover a mutual contractual intention where the agreement between the parties was entered into after, or in contemplation of a separation. B. Other family agreements The courts will be slow to discover a contractual intention underlying an agreement between a parent and her or his child. The courts are more ready to accord the status of a contract to agreement between siblings or more distant relations than is the case with agreements between spouses or between parent and child. Jones v Padavaton – The case is one of those family arrangements of which depend on the good faith of the promises which are made and are not intended to be rigid, binding arrangements. With regards to the possession of the house, the agreement was so imprecise and left so many details unsettled that it was impossible to construe it as a contract. Parker v Clarke – Promise was enforceable, thus, the courts ruled consequences of acting in reliance upon agreement demonstrated intention to be legally bound. C. Other Social agreements It is more likely that the courts will accord contractual status where the agreement is in the nature of a joint venture which has as its object the quest of a valuable prize. Coward - C and driver were coworkers who shared transport for a weekly sum. C killed in a motorcycle accident. C sued driver's insurance company & had to show that the driver had carried C for ‘hire or reward’. In the absence of evidence that the parties intended to be bound, the court was reluctant to conclude that the daily carriage by one of another to work on payment of some sum involved them in a legally binding relationship. Simpkins v Pays; Welch v Jess – The nature of the agreements were such that the parties must have contemplated that they would be enforced in the event of any win.

OR 2) Was this a COMMERCIAL agreement?  

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There is a presumption that there is an intention to create a legally enforceable agreement. The presumption is rebuttable. (Carlill, Edward v Skyways) Rebuttal of the presumption will require evidence indicating that both parties intended that no legal relations be created, ways which can be done include the following: o Where the parties have indicated that they wish to suspend any binding legal obligations until the happening of some prescribed event o Mere puffs: It is common to advertise goods by flamboyant reports of their efficacy and to support these by promises of a more or less vague character if they should fail to fulfil the promises. The D may attempt to plead that there was no intention tocreate legal relations and that only the most gullible customer would think otherwise (Carlill) o Honourable pledge: The parties may make an agreement on a matter of business or of some other transaction normally the subject of contract, but may expressly declare that it is not to be binding in law. (Rose & Frank)

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o Where only some terms are binding: There may be cases where the parties have clearly intended to enter an agreement of which only some of the terms are to be legally binding. Edward v Skyways – Attempt to rebut was ambiguous. Rose & Frank v Crompton – Unambiguous clause in contract to rebut. The agreement was expressly stated not to be binding in law but binding in honour only.

CAPACITY 

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The law recognises that certain categories of people in society may not have either the maturity or the capacity to understand fully the nature and extent of contractual agreements. The law provides some protection for these people. Contractual capacity

Minors

Minors’ Contracts Act 1969 (now CCLA 2017 Part II, subpart 6)

Mentally Dis...