Contract Law 172 - Lecture notes Law 172 PDF

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Lecture notes Law 172...

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Contract Law 172 Week 1 Agreement…. Elements of the contract 4 Essential Elements 1. Agreement 2. Consideration 3. Intention to Create Legal Relations 4. Certainty Existence of the agreements between the parties is usually offer and acceptance. what would an uniformed bystander  Offer – Is the first part of the exchange of promises that creates an agreement, its usually in the form of a proposal giving the other person the opportunity to decline or accept the offer. So the proposal or offer should include some terms so that when the acceptance is given the offer is immediately taken up.  key element of a willingness to be bound – Harvey and Facie, was the statement lowest price for bumber hall pen a contract.? court ruled that it was not.  What is not an offer? mere puffery……back when these laws were developed their was no regulation of advertising content. courts had to identify what promises the parties should be held liable for mere puffery or if indeed they should be held legally liable. eg the washing powder makes your clothes whiter than white, or that Coke makes your world more fun.  Invitation to treat – this is the back and forth prior to an acceptance, offer to receive offers, offers to chaffer….eg shop front windows, tenders, catalogues, there may be limitation of stock which therefore makes the notice just an invitation to treat. Pharmaceutical society and boots chemist…  When an invitation to treat is an offer – case Carlill v Carbolic smoke ball – advertised that if you used the ball as directed you would not get influencer…..what was the objective approach to intention…the company was intending to be taken seriously with the deposit of money into the bank . this is what is known as a unilateral contract, this is a contract that becomes effective where offer is made and accepted by performing your part of the bargin. The other side is a bi-lateral contract where there is an exchange of a promise but neither party has performed. Auctions  The auction is an invitation to treat  The bids are offers  The fall of the hammer signifies acceptance of the highest bid

Case of AGC v McWhirter – where the seller refused to sell to McWhiter, so the auctioneer passed the sale to the second highest bidder. McWhiter claimed that he accepted the offer when he had made the highest bid….The courts actually disagreed they relied on Payne v Cave as the authority from1789 that the bids are the offers and the knock down all is the acceptance. Negotiations  Battle of forms (template/standard proforma)  Butker v ex-cell-o  Correspondence – the difference between an offer and acceptance verus a series of invitation to treat.  Gibson v Manchester City Council; Brambles Holdings v Bathurst City Council; Butler Machine Tolls v Ex-Cell-O-Corp Has an agreement been reached? When was the agreement reached? Where was the agreement reached? Offer – Duration  Lapse – Reasonable timeframe?  Revocation/withdrawal – Offeror can revoke at any time until its accepted (Dickeson v Dodds), revoke a uni-lateral offer after the offeree has started to perform the offer however is not completed. A world offer can only be revoked in the same way that it has been offered, eg if offered through SMH over 4 weeks then the revocation must be communicated in the same way, for the same duration.  Rejection (incl counter offer)  Conditional offers – may stay open so long as specified conditions are met.  Options – is an exception to the rule that offers can be revoked any time prior to acceptance. Must be supported by consideration or nudum pactum….eg. you will purchase this property in 6 months however you must pay some consideration for the acceptance of the offer to be binding, paying rent for 6months prior to the purchase of the property. Case – Goldsborough Mort v Quinn (What happens if the offeree is unable to fulfil the conditions of the option?)

Acceptance Offeree response to an offer Elements of Acceptance  Offer and acceptance must correspond – must agree to the terms, not add or change terms. If you change the terms this means that the offer has been rejected and is called a counter offer.  Acceptance must be unequivocal – Clear and concise that nothing is left to be decided  Must be communicated – Communication through a third party is not enough, there are exceptions to this rule. Acceptance can be express or

implied eg previous dealings or unilateral contract (acceptance is by performance). The acceptance mode can be prescribe expressly or by implication and even if the offer specifies a mode of acceptance this doesn’t have to be the mode that is used. The postal acceptance rule – Offer was an option eg. ‘This option may be exercised by you by notice in writing addressed to me any time on or before 20 December 1972’ – offeree accepted by posting a letter on 18 December – Letter arrived 21 December - Date of postage is deemed the time the offer has been accepted Case – Bressan v Squires, the court decided that the postal rule didn’t apply because of the word ‘Notice’ and didn’t expressly imply that the acceptance had to be through the postal service. Case - Manchester Diocesan Council v Commercial & General, the offeree accepted the offer by send a letter to the Surveyor and not the address of the offeror. The court held that the acceptance was valid even though it didn’t comply with the stipulated mode because other modes were NOT excluded, other modes are okay as long as they are no less advantageous to the offeror. Silence cannot be prescribed as a mode of acceptance. Case – Felthouse v Bindley, Uncle offers to buy the horse from Nephew – ‘if I hear no more about him I will consider the horse mine at 30pounds – Nephew decides to accept – horse is accidentally sold at auction – uncle sues the auctioneer as breach of contract – was there a contract? No, a contract cannot require offeree to reject an offer or be bound by it, cause it would require a positive action by the offeree to reject the offer – called inertia selling – s64 Trade Practices Act (like a company sending goods to a person and say if you don’t want them you can send them back) Back to the basic elements of a contract ‘Willingness to be bound’  Must be in prescribed mode – the offeror can dispense with the requirement of notice, P  Postal acceptance rule – Doesn’t matter when the letter arrives or if it never arrives, this rule does not apply to new technology, email and fax etc – Electronic Transactions Act 2000 (NSW) s13A – stipulates the time of receipt that an electronic communication has been received (not when it has been read) to an designated address. If not a designated address then it is at the time when the addressee has become aware of it.  Only offeree can accept – Acceptance of the offer must be done in reliance on the offer, the offeree can only be deemed to have accepted the offer if, performance was motivated by the reliance of the offer. eg R v Clarke – reward case – Clarke provided information to assist police in the prosecution of the murder’s – claimed reward – had seen notice of the reward, however acted on a personal motivation to not be convicted – performance of the contract was deemed not a valid acceptance as it was not done ‘acting upon its faith or in reliance upon it’  Acceptance – Rejecting the offer – Counter – offer is rejection of the original offer, only the offeror can revive the offer and not the offeree. (case Hyde v Wrench), a request for additional information is not a counter-offer and will not revoke the offer (Stevenson Jaques v McLean)

 Acceptance not valid unless the offeree knew of the offer Electronic Transaction Act 2000 (NSW) Intention to Create Legal Relations

Presumptions First occurred between family, social and domestic relations – no intention to create legal relations. Commercial agreements – at arms length – is an intention to create legal relations. Case – Ermogenous v Greek Orthodox Community of SA 2002– HC criticised the presumptions, they said that these presumptions should not be included as harden, ridged parts of the law. They should be a starting point for what the intention of party was. Presumptions should be treated with caution, onus of proof is on the party that wants to rebut the presumption. eg a family member arguing that they did have an agreement with another family member to perform a specific task, onus of proof is the family member raising the issue.  Presumptions intention is objective  Treat with caution or avoid all together  History is relatively new, started from an agreement between spouses.  Can be rebutted with evidence. Family, Social and Domestic – Generally presumed that there is no intention to be bound, did the parties intend to be met with legal consequences if the agreement was breeched? Look at the timing, for example when a husband and wife have separated and the wife continues to pay the mortgage on the family home with the understanding that the husband will transfer his interest in the home to her, because the marriage has broken down and there is no love or care left in the relationship the courts would find that the agreement was valid and the presumptions have been rebutted. It is also easier to rebut the presumption if the terms are very vague, or ‘where the promise is involved in undertaking onerous obligations or giving up existing advantages in reliance’ – Case Todd v Nicol – where the couple was asked to move to Oz from Scotland to take care of her and she would leave them the house – they gave up their jobs and came to Oz – living together posed some conflict – she kicked them out – they claimed she had broken her agreement – courts ruled in their favour due to the amount they had given up to meet the terms of the agreement rebuts the presumption that the parties did not intend to create legal relations. Commercial – has a very strong presumption that the parties did intend to create legal relations. in some circumstances can be rebutted/displaced. From example the Honour Clauses (in the text Non-Binding commercial agreements), these are expressly stated in their contracts that ‘this agreement is not entered into as a formal or legal agreement’ Case – Rose and Frank Co v J R Crompton & Bros Ltd – this honour clase was expressly stated, when 1 party broke the right of sale agreement another party

sought the right to enforce the contract. Courts held that the honour clause was effective as it expressly stated and the presumption was rebutted. Subject to contract – stated not to be bound until specific terms are provided, rebuts the presumption as it is expressly stated that the parties did not intend to agree to the offer until conditions were met. Case – Masters v Cameron – this agreement is made subject to a formal contract of sale and is accepted by my solicitor. Rebutted the presumption. Letters of Comfort – a device that parties use for eg that a company owns a subsidiary and provides a letter of comfort to say that they look after the companies interest of the subsidiary company. Like a legal guarantee, however not intended to be legally binding. Case – Esso Petroleum Ltd v Commissioners of Customs and Excise – giving away coin with petrol purchase – were charged tax on the import of Promotional goods – argued were not part of a commercial agreement only a gift – court held that promotional gift was used as channel to create additional petrol sales and therefore did not rebut the presumption. Advertising puff was linked to a commercial intention. ( isn’t all advertising puff linked to a commercial intention?) ?????? are they legally binding or not?? Government Schemes – Arrangements can be entered into commercial contracts with departments no different to any other commercial contract, but in some cases the government might enter into an agreement which is not seen as legally binding. for example - different social service schemes considered non-binding contractual agreement. Arrangements are not underpinned by an agreement to be legally bound, could be considered to be administrative scheme. Case – The administration of the territory of Papua New Guinea v Leahy – tick eradication scheme carried out porrly by the government – land holder attempted to sue for breach of contract – Held that the arrangement was of an administrative rather than contractual nature.

Week 2 - Contract Formation Have completed Agreement, Consideration, Intention to create Legal relations, now onto  

Certainty Capacity

Capacity

Capacity is limited in some circumstances to protect the individual eg. disability, minors and sometimes capacity is limited to protect the community eg prisoners, bankrupts  A person’s ability to understand transactions  common law – presumption of capacity  Capacity affects – Minors, Alcohol/drug impaired, mentally ill, intellectually disabled, prisoners, bankrupts. Minors ( property and contracts) act 19770 (NSW) – 18 years, the approach in contract law is called status based, where you are put into a category based on your age and not your ability to understand the information. The law has mitigated this validity in some circumstances, where the minor might be able to enter into a contract, but rescind that contract and avoid their contractual obligations….usually a contract between a minor and an adult will be binding on te adult but might not be binding on the minor. Most states have a common law approach to minors and contracts, however NSW has a legislation that applies to minors and contracts. (legislation will prevail) Common Law – Outside NSW Minors are bound by necessaries’, employment contracts that are beneficial. A minor is bound to complete the necessaries’, which have been outlined in Chapple v Cooper (1844) 153 ER 105, food, lodging, education, moral and religious information. Necessaries are enforceable, not for necessaries are voidable – even if beneficial  2 Tests –  1.Is the particular subject matter a necessary thing?  If so, was that subject matter necessary at the time of the contract? The burden of proof rests with the provider of goods or services, did the minor require Peters v Flemmings – deemed that necessaries relate to their minors current standings in life. Even when the contract is necessary it must also be of benefit to the minor, De Francesco v Barnum – Contract of employment for 7 years to dance at a circus – voidable – minor agreed that she wouldn’t accept any professional engagement during her employment – this clause was so disadvantageous to the minor – one sided – voidable. Within NSW – Legislation

s 19 – if a minor participates I a civil act then they are bound by it. s 18 – deems that if a minor lacks capacity it does not make the contract binding. s 20 – a contract is binding for a fair price and partly executed. Presumptively binding. s 30 – minor can affirm a contract, even if it isn’t beneficial. s 26 – Court can grant a minor capacity to enter contracts. NB: Benefit is not defined in the Act Certainty Completeness – all essential terms are included Certainty – the words are capable of meaning something. * there are two limbs to the uncertainty doctrine, the contract must be complete and the terms must be able to be understood. All essential terms, which terms are essential depends on their circumstances. Tensions between two competing values: 1.Courts want to give effect to what parties have agreed on 2.Courts don’t want to write contract for the parties An essential term in one only the parties can decide, however some contracts are very common and courts have decided which terms are essential, some examples are - Sale of land – essential terms are the parties, the price and the property Lease – essential terms are the commencement date and the rental amount. ‘The threshold question is not whether the expressly agreed terms are sufficient in themselves to constitute a contract, but whether the parties have specifically agreed to all the terms that only they can decide.’ If the essential terms are missing, why are they missing? forgotten to include, will negotiate later or overlooked, if these essential terms are missing then the contract may not be enforceable. Masters v Cameron – an agreement with essential terms to be agreed in the future will not be enforceable.

Executory contract – an exchange of a promise but neither has performed their promise yet. e.g. sale of contract – when a promise of the sale of the property has been agreed, however has yet to be executed, this will be executed at settlement of the property. Executed contract – an exchange of promises and both have performed their promise. Partially executed contract – promises exchanged , one party has performed their promise and the other party has yet to perform their promise. e.g. Carlill v Carbolic. Courts have held that if a contract has been executed and both parties have performed their promise inline with the terms set out in the contract then there is no issue and the courts are unlikely to undo a contract in those circumstances.

Certainty This is relevant when an essential term is so vague or imprecise or poorly written that it is meaningless. Case – Meehan v Jones, subject to satisfactory finance Whitlock v Brew, an option to lease is granted ‘upon such terms as commonly govern such a lease’, there were no such common terms Biotechnology v Pace, employment contract stated an annual salary plus ‘the option to participate in the company’s senior staff equity sharing scheme’ however no such scheme existed……Assignment reference! The courts will look to give meaning to a contract even if the expression is vague, some examples of the words used that the courts have given meaning to are: Promises to pay ‘handsomely’, ‘a substantial sum’, a ‘substantial cut on all work done’, ‘a fair and equitable price’, ‘supplier costs’ and ‘current bank overdraft rates’ were found to be ok. The courts have struck down as too uncertain a promise to ‘well reward’ a housekeeper. Reasonableness Can you cure the defect by reading in a limit that parties act reasonably? Hall v Bust – provided for repurchase of land at ‘a reasonable price less a reasonable sum to cover depreciation’ while there are many ways to calculate

depreciation, courts could not identify what the parties had intended the contract was void due to uncertainty. Illusory Promises Gives an unfettered discretion to one party whether they have to do anything at all. Consider whether a term confers a very broad discretion on one party, so that if you look at it very closely that party actually has no obligation at all. e.g. Meehan v Jones, contract subject to finance ‘on satisfactory terms’. What if the purchaser is never satisfied with the terms that are offered? Biotechnology v Pace, the illusory promise of a senior equity scheme that doesn’t exist. Subject to contract  Parties have reached agreement and intend to be bound immediately. They also propose that the terms be written into a more formal agreement that will be signed. This is a binding agreement.  The parties have agreed on all terms, but performance of the agreement is conditional on them entering into a formal signed agreement. This makes signing the formal agreement mandatory and enforceable. This is a binding agreement. Not Sure what an example of this is?  The parties have agreed on all the essential terms, but there is no enforceable binding agreement unless and until the formal contract is signed. – Masters v Cameron

Formalities Contracts can be: - Oral - In writing - Partly in writing and partly oral Some Contracts must be written: -

Conveyancing Act 1919 (NSW) s54A

NB: There is a requirement all contracts that relate to land and property, lease or sale must be written to be enforceable. Requirement of Writing Certain types of contracts must be in writing: Statute of Frauds 1677 (UK) A few reasons why they need to be in writing, to evidence that the agreement had actually happened, as a caution to force parties to think about their obligations in a more granular way, as a channelling function – to channel parties to complete agreements in a form contract. Since then this statute has been modified and added to statute of frauds in Australian legis...