Contract Law A - Problem Question Scaffold PDF

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Contract Law – Problem Question Scaffold Agreement Conventional approach – offer and acceptance (Gibson v Manchester City Council, Carlill v Carbolic) A contract is formed at the time and place acceptance is communicated to the offeror. ‘ad idem’ – joining of the minds Offer Willingness to be bound ...

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Contract Law – Problem Question Scaffold Agreement Conventional approach – offer and acceptance (Gibson v Manchester City Council, Carlill v Carbolic) A contract is formed at the time and place acceptance is communicated to the offeror. ‘ad idem’ – joining of the minds Offer 1. Willingness to be bound without further negotiations (Gibson, Pharmaceutical Society v Boots) a.

Preliminary negotiations (Harvey v Facey, Gibson)

b. Mere puffery (Carlill) c.

Can an offer be made to the whole world? (Carlill)

d. Invitation to treat (Pharmaceutical Society v Boots) 2. Exchange aspect Return promise for the promise or the completed performance of an act by the promisee. a.

Conditional gift (Australian Woollen Mills v Cth)

b. Quid pro quo (Australian Woollen Mills v Cth) Termination of an offer Is the offer still valid/ able to be accepted? a.

Has it been revoked?

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An offer may be revoked any time prior to acceptance (Goldsbrough Mort v Quinn, Dickinson v Dodds)

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Revocation may come from a third party and can be inferred by conduct (Dickinson v Dodds)

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Revocation is only effective where it has been communicated to the offeree (Stevenson Jacques v McLean)

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In a unilateral contract an offer cannot be revoked once performance has begun. (Mobil Oil v Wellcome rejected previous approach by Abbott v Lance)

Implied ancillary contract An ancillary contract should be generally implied 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 acceptance" or "embarking upon the act of acceptance" is problematical and can lead to a result which is unjust to the offeror. By reference to the facts of the present case, could it be suggested that attainment of ninety per cent in the first year or even perfect operation of a service station for a day, a week or a month, albeit by reference to the offer, represents a commencement of attainment of ninety per cent in all six years so as immediately to bind Mobil not to revoke?

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. We do not accept that it is universally unjust that an offeror be at liberty to revoke once the offeree has "commenced" or "embarked upon" performance of an act which is both the sought act of acceptance of the offer and the sought executed consideration for the promise.

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If an offer has been accepted by two parties without proper revocation the offeror is bound to each and every party who accepts. The offeror will be liable in damages for breach of contract to those who accepted. (Patterson v Dolman)

b. Rejection -

Rejection of an offer by the offeree extinguishes the offer (Tinn v Hoffman)

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A counteroffer by the offeree extinguishes the original offer (Hyde v Wrench)

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A request for information is not a counter offer, and will not extinguish an offer (Stevenson v McLean)

c.

Has the offer lapsed?

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If an offer is stated to be open for a specified period of time, it will lapse at the expiry of that time period.

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If no time is specified, the offer will lapse after a reasonable time has passed (Manchester Diocesan)

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If the offer is stated to be subject to a condition it will lapse if the condition is not satisfied.

Acceptance a.

Is there an unqualified assent to the terms of the offer (Brambles v BCC, Butler Machine Tool)

b. Objectively or subjectively -

Subjective – meeting of the minds

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Objective – external manifestation of assent (Taylor v Johnson)

c.

Time of the formation of the contract is when the offeror receives communication of acceptance (Brinkibon v Stahag Stahl)

d. Ordinarily, the place of the formation of the contract is where the offeror receives communication of acceptance (Brinkibon v Stahag Stahl) e.

Nexus - Acceptance must be of and in response to the offer (Crown v Clarke)

f.

Communication – Acceptance must be communicated to the offeror. (Carlill)

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Acceptance cannot be inferred from the silence of the offeree (Felthouse v Bindley)

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Conduct can infer acceptance (Empirnall v Machon Paull)

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The offeror may waive the need for actual communication (Carlill)

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The offeror may provide a prescribed method of acceptance (Manchester Diocesan)

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Postal acceptance rule – acceptance is effective at the time and place that it is posted. Electronic Communications Act. “capable of being retrieved by the addressee”

g. Correspondence – Acceptance must correspond with the offer (Butler Machine Tools) -

Must amount to an unequivocal statement or form of conduct indicate assenting to the offer (Brambles)

Consideration

Two elements: 1. An exchange -

Quid pro quo relationship – this for that (Australian Woollen Mills)

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Bilateral – the consideration is a promise in return for a promise

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Unilateral – a promise in exchange for an act. Cannot be a conditional gift (Australian Woollen Mills)

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Must move from the promisee but need not move to the promisor (Coulls, Beaton v McDivitt)

2. Benefit / Detriment -

An act of the promise where the promisor derives a benefit or advantage

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Any forbearance, labour, detriment or inconvenience suffered by the promise at the request of the promisor as the price of the promise (Carlill v Carbolic)

a.

Consideration must be sufficient but need not be adequate (Chappel v Nestle)

b. Must not be illusory – the promisor cannot retain an absolute discretion to perform (MacRobertson Airlines) Must not be so vague that it does not amount to a promise (Dunton v Dunton) c.

Past consideration is not good consideration (Roscorla v Thomas)

d. Executed consideration is sufficient -

The act was done at the promisors request

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The parties understood that the act would be remunerated in some way

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If the promise had been given in advance of the act it would be legally enforceable

e.

Promise to perform an existing duty is not good consideration (Stilk v Myrick) except where:

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Fresh consideration is provided (Foakes v Beer)

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Practical benefit is conferred on the promisor (Musumeci v Winadell)

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Existing duty is owed to a third party (Pao On)

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There has been a bona fide compromise of a legal claim (Wigan v Edwards)

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The original contract has been terminated and replaced with a new contract.

f.

Pinnels rule – a promise to pay a lesser sum cannot be consideration for the greater sum unless the debtor pays before the due date or in a different form.

Intention to create legal relations

Traditional approach 1. Commercial contexts presume an intention – the burden of disproving this intention is therefore on a person denying the enforceability of such a transaction. 2. In the case of non-commercial transactions, an intention to create legal obligations is not presumed – the onus rests on the person seeking to enforce such an agreement to convince the court that the parties did manifest an intention to be bound. Post Ermogenous approach Rebuttal of traditional presumptions: -

A person claiming that a contract has been made bears the onus of establishing the element of formation

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Where the other party denies the existence of a legally binding contract, then the person alleging the existence of a contract must satisfy the court that the parties manifested an intention to create legal relations.

a.

Objective determination on intent to create legal relations (Ermogenous)

b. Commercial transactions have a presumption of intention -

Onus of proof falls on the party trying to disprove the intent (Rose and Franks. Banque Brussels v ANI)

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Letters of comfort can be found to contain legally enforceable promises (Banque Brussels v ANI)

c.

Non – commercial transactions generally presume no intent

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Onus of proof on the party asserting the contract (Ermogenous)

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Objective factors may be considered to establish intent (Balfour, Todd v Nicol)

d. Preliminary agreements will be binding, if it appears the parties intended it to be so (Masters v Cameron) -

Reached finality and intend to be immediately bound – but wish to state contract in fuller but not different form

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Completely agreed on all terms and intend no departure/addition to what is agreed, bit make performance of one of more terms conditional upon formal documents being executed

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Parties do not intend to make a concluded bargain unless and until they execute a formal contract

Capacity

a.

Minors do not have capacity to enter contractual relations

Common Law Protection i) ii)

Contracts for necessaries are an exception and will always be binding on a minor. Minors must pay a reasonable price for necessities Contracts are binding unless repudiated by the minor, during minority or a reasonable time after.

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Applies to contracts to acquire interest of more permanent nature (lease of land)

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Only a minor has the opportunity to escape such contracts

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If avoided in future the minor remains liable for obligations accrued (rent)

iii) -

Contracts are not binding unless ratified: Types of contracts not covered by i & ii are not binding unless ratifies within a reasonable time of reaching the age of majority

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Minor may ratify to enforce or plead minority to avoid liability.

Statutory Protection iv)

Minors (Property and Contracts) Act 1970 (NSW)

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A minor is presumptively bound by a civil act that is for the minors benefit (s 19)

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Provided the minor does not lack, by reason of youth, understanding necessary to participate in that civil act (s 18)

b. Mentally incapacitated persons lack capacity if they can show: -

They were incapable of understanding at the time, and

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The other person knew, or ought to have known of the incapacity (Gibbons v Wright)

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If the contract is for necessaries, the incapacitated party is still obliged to pay a reasonable price for such goods and services. (s7(1) Sale of Goods Act 1923 (NSW))

c.

Intoxicated persons lack capacity if the person can show:

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They were incapable of understanding at the time, and

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The other person knew, or ought to have known of the incapacity (Gibbons v Wright)

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If the contract is for necessaries, the incapacitated party is still obliged to pay a reasonable price for such goods and services. (s7(1) Sale of Goods Act 1923 (NSW))

Certainty and Completeness

a.

A contract may fail where it is not sufficiently complete:

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Parties must have agreed on essential terms (Whitlock v Brew, Hall v Bust)

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An effective machinery clause may not render a contract incomplete (Whitlock v Brew)

b. A contract may fail where language is too uncertain to give effect to the meaning of the agreement (Biotech v Pace) -

A contract of which there is more than one possible meaning will not be void for uncertainty, it will simply bear the meaning that most resembles the intention of the parties in creating the contract (Council of the Upper Hunter v Australia Chilling)

c.

A contract may fail where it is illusory (Biotech v Pace, Meehan v Jones)

d. The effects of incomplete, uncertain and illusory terms will render it void unless: -

The problem term can be severed from the agreement (Whitlock v Brew)

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If the problem term is solely for the benefit of one party, they may be able to waive compliance with the term (Perri v Coolangatta)

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A frustrated contract is a contract that, subsequent to its formation, and without fault of either party, is incapable of being performed due to an unforeseen event (or events), resulting in the obligations under the contract being radically different from those contemplated by the parties to the contract.

Formalities a.

Common law gives effect to contracts regardless of the form they take (written, oral and hybrid)

b. Legislation mandates specific formalities -

Sale of land (s 54A Conveyancing Act 1919 (NSW): Agreement in writing signed by the party or some person authorised OR a written note or memorandum of the agreement signed by the party

c.

Does the contract comply with all formalities?

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Requirements of signature - apply authenticated signature fiction (Pirie v Saunders): If the name of the party being charged (denying there is a contract) appears on the document and expressly or impliedly indicated that he recognises the writing as being an authenticated expression of contract then it is a signature. However, it needs to be identified as a note or memorandum of an agreement.

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A note or memorandum need not take any particular form even diaries can amount to enough (Popiw v Popiw)

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It need not be a single document (Fauzi Elias v George Sahely applying Timmins v Moreland Street Property)

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When was the note/ memorandum created?

i)

Generally, after acceptance as evidence of previously concluded oral bargain (Pirie v Saunders)

ii) Except where writing is a written offer, then agreement may be oral or inferred through conduct (Empirnall v Machon; Pirie v Saunders).

iii) Must be created before proceedings initiate in court (Popiw v Popiw)

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Does it contain all essential elements in writing (Pirie v Saunders, Hall v Bust): Parties, subject matter and consideration must be expressed.

d. Issues of non - compliance with the statute: -

Does the statute specify consequences of non – compliance?

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Does it expressly on impliedly allow or exclude alternative sources of relief?

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Alternative avenues for relief:

i)

Equitable relief pursuant to doctrine of part performance (Ogilvie v Ryan; Steadman; Maddison v Alderson),

ii)

Equitable relief pursuant to imposition of constructive trust,

iii)

Relief under equitable/promissory estoppel,

iv)

Relief at common law pursuant to restitution for unjust enrichment (Pavey & Matthews v Paul),

v)

Relief under Competition and Consumer Act 2010 (Cth) for misleading and deceptive conduct in trade/commerce disputes.

Alternative sources of obtaining relief Unenforceable = part performance No contract but unjust enrichment = restitution Commercial but no consideration = promisory estoppel Breach of contract = damages Constructive Trust

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After examining a number of cases, it seems that a constructive trust will be established in either of the following cases:

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Where the constructive trustee has only obtained his legal title because of the beneficiary, and obtained it only by having agreed that the beneficiary would have a beneficial interest in the property.

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Where the constructive trustee acquired title regardless of the beneficiary, but then the value of the property was increased by the work of the beneficiary. Neither of these scenarios fit the present case, because the benefits which the Defendant provided were of a domestic nature rather than improvements to the property. However, the common intention of the parties clearly show that the Defendant was to receive beneficial interest.

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Equity is able to intervene when there is an unconscionable use of legal title to deny someone's beneficial ownership, and therefore a constructive trust arises here.

Doctrine of Part Performance Equitable principle that allows a court to recognise and enforce an oral contract despite its legal deficiencies. A party can establish the existence of a contract despite the lack of any written evidence. This doctrine allows failure to comply with the statute of frauds to be overcome by a party’s execution, in reliance on an opposing party’s oral promise, of an oral contract’s requirements. Remedy available : specific performance or equitable damages in lieu of specific performance. Estoppel a.

Where no contractual relationship or unenforceable contractual relationship exists (Waltons, Guimelli) there must be:

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An assumption on the relying party

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Inducement by the representor relying party to act on assumption

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Detrimental reliance – whereby the relying party must have acted on the assumption in such a way that they will suffer detriment should the representor stray from the assumption

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It would be unconscionable for the representor to depart from the assumption (Maher)

The following elements may also be considered: -

That the relying party acted reasonable in their adoption of the assumption, and

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Whether the representor departs, or threatens to depart from the assumption adopted and acted upon by the relying party, constructive trust will be satisfied in either of the following (Ogilvie v Ryan):

b. Where the trustee has only obtained their legal title because of the beneficiary, and obtained it only by having agreed that the beneficiary would have a positive interest in the property, or -

Where the trustee acquired the title regardless of the beneficiary, but the value of said property was increased by the work of the beneficiary.
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