Contract Law A Study Notes PDF

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CONTRACT A LAW 2101

Naba Khan Student ID: 29805430

TABLE OF CONTENT Topic 1: Introduction to Contract Law Topic 2: Offer Topic 3: Acceptance Topic 4: International Contract Law Topic 5: Consideration

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TOPIC 1: INTRODUCTION TO CONTRACT LAW

FORMATION OF A CONTRACT A contract is an agreement or set of promises that the law will enforce (i.e. breach of which the law will provide a remedy) The formation of a contract requires 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 others 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) Other aspects of formation:  Certain formalities required for some types of contract  A party must have capacity to contract to be bound  Privity – only parties to the contract are bound

Bilateral v Unilateral Contracts BILATERAL CONTRACTS  Most contracts  2 parties to the contract (A and B)  Both parties exchange a promise or a set of promises for each to do something in the future  Both A and B’s promises are executory o i.e. to be performed at some point after the contract has been formed

PROMISE PROMISE UNILATERAL CONTRACTS  Typically reward scenarios, this means these contract can be open to the world at large  2 parties to the contract (A and B)  Only 1 promise made. B accepts A’s offer when B performs the stipulated task. The contract is formed at the same time B performs her obligations under it o There’s no need to give notice of acceptance prior to the performance  At the time the contract is formed, A’s obligation/promise is executory and B’s obligation has been executed (already performed) o “if you do x, I will do y” PROMISE  Carlill v Carbolic Smoke Carlill v

The carbolic smoke ball

How did Mrs

Carbolic argued that there was ACT 3

Carbolic Smoke (1893 UK CA)

company sold a medical device. They placed an advertisement offering a $100 reward to anyone who becomes ill and uses the smoke ball. Mrs Carlill used the smoke ball as directed for four weeks and claimed the $100 reward. Carbolic refused to pay and Mrs Carlill sued for breach of contract

Carlill argue that there was a contract? What were Carbolic counterarguments?

no contract and no offer made:  They said advert was not a promise or offer and just a mere puff  court used the objective test in which they agreed it was clearly an offer and not a mere puff  No offer can be made to the world at large  court held that it was possible to make an offer at large  The advert was too vague and uncertain  the court held that the advert was not too vague or uncertain Carbolic Co argued that Mrs Carlill didn’t communicate acceptance however the court held that acceptance occurs by performance. Acceptance doesn’t need to be notified before performance No consideration moved from Mrs Carlill  The court held that consideration was advantageous to Carbolic as they gained by the use of the ball to promote sales. There was a detriment to Mrs Carlill in her inconvenience using the ball

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TOPIC 2: OFFER WRITE: Agreement is the first element of contract formation. It is generally satisfied when one party (the offeror) makes an offer to a second party (the offeree) that accepts. Agreement occurs when acceptance is communicated by the offeree to the offeror

WHAT IS AN OFFER? An offer is when one person indicates his/her willingness to enter into a contract with that other person on certain terms  A proposal only amounts to an offer if the person making it indicates that an acceptance is invited and will conclude the agreement between the parties OBJECTIVE TEST Question: What type of statement or conduct (manifestation) constitutes an offer?  The courts use the objective standard of a reasonable person to determine what constitutes an ‘offer’ o I.e. the view of a reasonable person in the offeree’s position o Would a reasonable person in the position of the offeree think that an offer was intended and it would be binding on acceptance?  If no reasonable person would consider it to be a genuine offer it is then considered as a ‘puff’ o A mere puff (exaggerated sales talk) is not an offer  offeror makes a claim that is not meant to be taken seriously Offeror: the person who makes the offer Offeree: person to whom the offer is made (they choose to accept or reject the offer)

Gibson v Mancheste r Council (1979 HL)

Council sent a letter on the 10/2/1971 to Mr Gibson who was a tenant of the Council Housing. Letter stated that they “may be prepared” to sell the house to him for $2180. He was required to fill out an enclosed application form. The new local council stopped all proposed sales in which Gibson sought to enforce the sale by specific enforcement

Was there an offer to sell for $2180?

Trial Judge for Gibson. Court of Appeal for Gibson  Departed from conventional approach of offer and acceptance  Looking at the correspondence as a whole and the conduct of the parties to determine if the parties came to an agreement on everything that was material House of Lords for Council  Didn’t want to depart from conventional approach  “May be prepared to sell”

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and request for “formal application” made it impossible to see the letter as a firm contractual offer

INVITATION TO TREAT An invitation to others to make an offer or enter into negotiations. Not an offer because it lacks sufficient indication of willingness to be bound SHOP SALES  Goods that are displayed on shelves are invitation to treat (Pharmaceutical Society v Boots Chemist) o Customers make an offer to buy when checking out in which the customers offer is accepted by the acceptance of the price o It would be unworkable to say that taking the goods of the shelf was an acceptance of an offer, because it implies that the customer couldn’t have a change of mind and return the goods to the shelf before paying for them  Goods offered for sales online: o Electronic Transactions (Victoria) Act 2000 (ETA)  Section 14B  A proposal to form a contract made through one or more electronic communications that: a) is not addressed to one or more specific parties b) is generally accessible to parties making use of information systems c) is to be considered as an invitation to make offers, unless it clearly indicates the intention of the party making the proposal to be bound in case of acceptance o This means goods and services offered online generally to be treated as an invitation to treat unless clear intention to be bound by acceptance  similar to an advertisement Pharmaceutica l Society v Boots Chemist (1953 UKCA)

Pharmacy and Poisons Act made it illegal to sell drugs under supervision of a registered pharmacists. The pharmacists were present at checkout.

Was having the goods on the shelf an offer capable of acceptance by taking them off the shelf?

It was held that the goods being displayed on the shelves was an invitation to treat. Customers make an offer to buy the goods at the checkout. Pharmacists could either accept or reject the offer. Boots therefore not in breach of the legislation

If so, Boots would have been in breach of the legislation Explained: it would be unworkable to say that taking the goods off the shelf was an acceptance of an offer, because it implies that the customer could not have a change of mind and return the goods to the shelf before paying for them

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AUCTIONS General rule is that:  the auction is an invitation to treat  the bid is the offer  the offer is accepted by the auctioneers “fall of the hammer” The general rule is said to apply when the auctioneer says a property is “on the market”, or advertised for auction without reserve (AGC v McWhirter)  In this case, the vendor had not made an offer to sell despite auctioneer declaring that property was ‘on the marker’ This means that:  The seller can withdraw the property before acceptance of a bid  The seller can refuse to accept the bid  doesn’t have to sell to the highest bid  The buyer can withdraw a bid before acceptance AGC v McWhirter (1977 NSWSC)

Mortgagee auction in which the vendor (mortgagee) rejected highest bid from mortgagor

Vendor hadn’t made an offer to sell despite auctioneer declaring that property was “on the market”

TENDER A prospective purchaser of goods and service will often assess potential suppliers through tender process. The suppliers effectively bid for the work through submitting a tender  Often used for the sale of commercial or residential property  Often used by governments contracting The general rule is:  Request for tenders is an invitation to treat  Tender from interested supplier is the offer However, there are exceptions:  Sometimes the call for tenders may be an offer (Harvela Investment v Royal Trust of Canada)  Sometimes the call for tenders will create a contract re: tender process (Hughes Aircraft Systems v Air services Australia) Harvela Investments v Royal Trust Co (1986 HL)

Royal Trust sent telex to Was this an two other shareholders offer? “inviting” them to make a “Single offer” for its shares in A Harvey and Co Ltd. Their telex stated that “if any offer made by you is the highest offer received we bind ourselves to accept provided it complies with the terms”. Harvela submitted an offer of $2,175,000 and Outerbridges offer was “$2,100,000 or $101,000 in

It was held the “invitation” telex was an offer. Harvela accepted the offer by making the highest fixed price bid  Outerbridges “referential bid” did not contain the highest fixed price bid

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Hughes Aircraft Systems v Air services Australia (1997 FC)

excess of any other offer” Hughes There are two valid tender process contracts governing unsuccessfully the tender process submitted tender  CAA letter describing tender process and for air traffic control evaluation criteria (offer: not invitation to treat) services – claimed  accepted by Hughes signing that tendering  Formal request for tenders with similar terms process was not (offer), accepted by Hughes lodging its tender complied with CAA was in breach of contract:  Failing to evaluate tenders in accordance with criteria  Confidentiality not enforced  Accepted late change by other tenderer

TERMINATION OF OFFER An offer can be terminated by:  Revocation of offer by offeror  Lapse of time=: of no time prescribed  after a reasonable time  Death of offeror/ offeree  Failure of a condition  Rejection by offeree: rejection must be communication

REVOCATION Can occur at any time before acceptance, even if the offeror promised to keep it open (Dickinson v Dodds)  By words or actions inconsistent with continuance of offer (Dodds)  Effective when it reaches, i.e. communicated to the offeree by offeror or some other reasonably reliable sources (Dodds)  Offers to the public at large can be revoked in the same way or other way with same coverage that the offer was made (e.g. in newspaper) Exceptions:  If consideration has been to keep the offer open (called an option) (Goldsborough Mort) o A promise to hold an offer open is binding at common law if consideration has been given in return for that promise  If a unilateral contract, performance has commenced, and there is an implied contract not to revoke or an estoppel (Mobil Oil) o There is no universal rule that a unilateral offer cannot be revoked before acceptance (even where offeree has begun performance). Generally, a unilateral offer can be revoked before acceptance, however a remedy may be available under:  An implied contract not to revoke  Does the offeror know the offeree has commenced performance?  Does the offeree understand the incomplete performance is at their own risk?  Did the parties intend that the offeror should be able to revoke the offer?  Is the performance beneficial or detrimental to the offeree?  Estoppel 

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If there is a promise to hold an offer open that is subject to the CISG (Article 16) 1. Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance 2. However, an offer cannot be revoked:  If it indicates whether by stating a fixed time for acceptance or other wise that it is irrevocable  If it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer

Dickinson v Dodds (1876 UKCA)

Goldsbrough Mort v Quinn (1910 HCA)

Mobil Oil v Wellcome Intl Pty Ltd (FFC 1998)

Was there a It was held that Dodds On the 10th of June, Dodds binding revoked the offer by made an offer to sell to contract? selling the land to Dickinson (to be left open until 9am on 12th June). On someone else. This revocation had been the 11th June Dodds sold the communicated to land to a third party. That Dickinson before evening, Dickenson’s agent acceptance, the agent was told him about the sale to a reliable source. the third party. Before 9am Therefore there was no on the 12th of June contract Dickinson accepted Dodds offer Goldsbrough Held that the offeree paid for option to have one week to paid 5 shillings consider the offer. It was held that the offeror could not for the the right withdraw before the expiration of the promised period to purchase land at Bena The judges analyzed the arrangement in different ways: Billa for 30 per Conditional Contract (Griffith CJ/ O’Connor J)  There was a contract to sell the land subject to a acre “calculated condition (i.e. exercise of the option) on a freehold 2 separate contracts (Isaacs J) basis” within a  Option was a preliminary contract to hold the week. Quinn offer open (i.e. an offer with a promise not to purported to withdraw) revoke the  The exercise of the option created a second offer. contract to sell the land Goldsbrough acceptance within the week An option contract (a promise to keep an offer for value) is binding and specific performance can be given and sought specific performance (i.e. land) Accouchement by Mobil to franchisees that if scored >90% in Circle of Excellence program for 6 years they would be

Trial J (Wilcox)  Unilateral contract offer cannot be revoked once performance has commenced Held FFC:  No offer  statement was too vague and uncertain to be a contractual obligation  Even if it were an offer, Mobil entitled to revoke unilateral offer although performance had

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entitled to 9 free extra years on franchise. Plaintiff proceeded to get such scores but offer revoked after 4 years and program cancelled.

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commenced There is no general proposition that an offeror can’t revoke the offer once the offeree commences performance But there may times where there is an implied ancillary contract not to revoke the offer once the offeree commences performance (an implied promise not to revoke given in return for consideration of commencing performance)  in which case revocations 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  the franchisees did not suffer any substantial detriment  the franchisees were already bound to adhere to Mobil franchisee standards

LAPSE OF TIME Offer may be open for specified period  will lapse at the end of the specified time  if no period specified  will lapse after a “reasonable time” o apply an objective test. What is “reasonable” will depend on the context

DEATH OF OFFEROR 

 

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Offer will lapse on death of offeror (where offeree knows of the death) (Fong v Cilli (1968) 11 FLR 495 (NT SC)) o Vendor died before one of the purchaser signed. The remaining purchaser had notice of the death and the offer lapsed. The implication that an offer may still be accepted before notice unless personal services required No clear authority as to whether an offer will lapse on death of offeror when offeree doesn’t now about the death  depends on the parties intentions and circumstances Option contracts remain enforceable against deceased estate unless: o Personal services of deceased required o Intent of option was that it not be exercisable after death (Laybutt v Amoco Australia Pty Ltd (1974 HCA)) No clear authority as to whether an offer will lapse on death of offeree, however it seems that an offer would generally lapse on death of offeree  however, depends on the parties intentions and circumstances

FAILURE OF CONDITION AND CHANGED CIRCUMSTANCES Express conditions: the offeror may stipulate circumstances in which an offer will stay open or lapse, or which must be satisfied before an offer can be accepted (e.g. offer subject to board approval)

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Implied condition: if the offeror doesn’t 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 (Financings Ltd v Stimson (1962 UKCA))  Offer to purchase car subject to implied condition that car remain in same condition. Unable to be accepted after car stolen and damaged

REJECTION AND COUNTER OFFER    

Once an offer has been rejected it is no longer available for acceptance A counter offer is treated as a rejection A “mere inquiry” is distinguished from a counter offer and not a rejection (Stevenson, Jacques and Co v McLean) 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 (Brambles)

Stevenson, McLean offered to sell Jacques & Co v iron to SJC for 40s per Mclean (1880 UK) ton, offer open till Monday. At 9:42am Monday SJC telegraphed “please wire whether you would accept forty for delivery over two months, or if not, longest limit you could give”. McLean didn’t answer and sold the iron to someone else, SJC sent a telegram accepting the offer

Was the telegraph seen as a rejection of the offer? Was there a binding contract to sell iron?

It was held that there was no rejection of the offer. It wasn’t a counter-offer but a mere inquiry. The offer could have been revoked (but wasn’t) so it was still open and was accepted. There was a binding contract

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TOPIC 3: ACCEPTANCE Acceptance: an unqualified assent to the terms of the offer  Unqualified = has to be on the same terms of the offer  Assent to the terms = indication of the assent  communication

CONDUCT CONSTITUTING AN ACCEPTANCE What conduct amounts to acceptance? What if an offeree appears to be assenting to the offer but was mistaken as to the terms? What if the offeree didn’t familiar himself or herself with the full terms of the offer? Modern approach  the objective test prevails  TEST: would the reasonable person consider the parties to have reached agreement having regard to their external manifestations (Fitness First v Chong) Fitness First and Chong NSW SC 2008

Mrs. Chong signed a written contract for gum membership without reading the terms. She was unable to continue exercising due to heath issues and she terminated her membership. This made her liable to pay a $200 termination fee

Was Mrs. Chong bound to pay the $200 even though the parties were not ad idem (“off the same mind”)?

It was held that a valid contract doesn’t require the parties to be of the same mind, or for each to fully understand the terms of the agreement. The general rule is that a person who signs a document which is known by that person to cons...