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Law of Contract A

Case: Gibson v Manchester City Council (Pg 42-45) Citation: Gibson v Manchester City Council (1979) 1 WLR 294 Procedural History:   

Gibson takes the case to trial – trial judge rules that the contract is binding Council appeals to the Court of Appeal – dismissed Council appeals to the House of Lords (used as a test case) – appeal allowed

Material facts: Under the Conservative Party the Manchester City Council adopted a scheme which allowed tenants of council housing to purchase their homes  Gibson received a letter from the council stating that they “may be prepared to sell the house to you” at a nominated price and advised he should fill out an application form in order to make a formal application to purchase the house  Gibson completed the form, but left the purchase price blank as he wanted to negotiate the cost of repairs to his driveway  Before formal contracts were able to be presented, the Labor party came into power and absolved the scheme, only completing those sales for which a binding contract existed  Gibson claimed that a contract had been formed when he filled out the application but the council argued that no binding contract had arisen between the two  The trial judge ruled that a binding contract existed between the two and thus ordered specific performance by the council Legal Issue: Whether or not a formal binding contract had been created between the two parties (ie. Whether the process of offer and acceptance had taken place) 

Ratio and Reasoning: Court of Appeal 

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Lord Denning rejected the conventional approach of looking to see whether the documents constituted offer and acceptance - he though that one ought to “look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have come to an agreement on everything that was material” Lord Justice Ormrod agreed with Lord Denning Lord Justice Geoffrey Lane dissented and found that ‘upon the true construction of the documents relied upon as constituting the contract, there was never an offer by the corporation acceptance of which Mr Gibson was capable in law of constituting a legally enforceable contract. It was but a step in the negotiations for a contract which…never reached fruition”

House of Lords 

Lord Diplock; o This is not the case where a contract is made by the exchange of correspondence between the parties o Adopted a conventional approach (offer and acceptance) o Rather than being a formal offer, the letter from the council to Gibson was an invitation to treat  an offer to make an offer which places the onus on Gibson, and means that it is the councils decision as to whether or not the accept the offer o In reference to the letter, Diplock found that the words “may be prepared to sell” make it impossible to construe the letter as a contractual offer o The letter also expressly states “This letter should not be regarded as a firm offer of mortgage”

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“It is unnecessary to consider whether the application form and Mr Gibson’s letters of 3 and 18 March 1971, are capable of amounting to a contractual offer by him to purchase freehold interest in the house at a price of $2,180 on the terms of an open contract, for there is no suggestion that, even if it were, it was ever accepted by the corporation” As a result, the appeal was allowed in the House of Lords

Case: Carlill v Carbolic Smoke Ball Company (Pg 45-50) Citation: Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256 Procedural History:  

The Plaintiff (Carlill) took the matter to the courts and the trial judge held that there was a valid contract and the defendant was entitled to the damages The defendant appealed the matter to the Court of Appeal – appeal dismissed

Material Facts: The Carbolic Smokeball Company developed a product to prevent colds and influenza – they placed an ad in the newspaper stating; o $100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. $1,000 is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter  Carlill purchased a smoke ball and used it as per the directions on the box from the 20th of November 1891 to the 17th of January 1892, when she contracted the influenza  She claimed she was entitled to the $100 as promised, however the defendant denied that any contract existed and said they were not serious Legal Issue: Whether the actions undertaken by an individual constitutes consideration and consequently acceptance to an offer made to the world, and also as to whether the offer was in fact a genuine legal offer (with the intent to create legal relations) or just mere puffery 

Ratio and Reasoning: 

Lord Justice Lindley o There was an express promise to pay $100 in certain events – must consider whether this was intended to be a promise at all or was just mere puff. The answer is to this is no, that the fact that the company has deposited $1000 “with the Alliance Bank, shewing our sincerity on this matter” shows their sincerity in the matter o There is also contention as to whether the offer is not binding, as the offer was not made to anyone in particular, it is an invitation to the world at large – it is considered to be an offer to anyone who performs the condition named in the advertisement and thus anyone who performs said condition is accepting the offer  Based on authorities contained in Williams v Carwardine (1833) o It was then said however that notification was necessary to form a binding contract – said that the person who makes the offer gets the notice of acceptance contemporaneously with the performance of the condition o There was an argument that this is nudum pactum (ie. ‘No consideration’) – the benefit to the defendant is the sale and thus the advertisers achieve an advantage which is enough to constitute a consideration

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The consideration undertaken by the plaintiff can in a sense be the giving up of some rights and/or the detriment caused must have been at the request of the offeror Lord Justice Bowen – of the same opinion as Lindley o Said that “in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it” as the advertisement was indented to be issued to and be read by the public o There is fallacy of the argument that the contract is made with the whole world – the offer is made with the whole world, an offer to become liable to anybody who performs the condition on the faith of the advertisement o “If this is an offer to be bound, then it is a contract the moment the person fulfills the condition” o Notification of the acceptance is required for the benefit of the person who makes the offer – if the person making the offer expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without an y communication, the performance of the condition is acceptance without notification 

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Case: MacRobertson Miller Airline Services v Commissioner of State Taxation (Pg 50-54) Citation: MacRobertson Miller Airline Services v Commissioner of State Taxation (1975) 133 CLR 125 Procedural History:  

Appeal from the Supreme Court of Western Australia The Appeal was allowed

Material Facts: 

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A condition which was printed on an airline ticket by the MacRobertson Miller Airline Services contained a condition printed on the back of the ticket that provided that the airline reserved the right to abandon any flight or cancel any ticket/booking and that upon abandonment/cancellation, the passenger would be entitled to a refund of so much of the fare as was proportionate to the part of the flight abandoned or cancelled, and the airline would be under other liability to the passenger for failure to carry them at the booked scheduled time or at all It was necessary for stamp duty purposes to determine whether the ticket issues was “an agreement or any memorandum of agreement” The Supreme Court of WA found it was a kind of agreement

Legal Issue: 

Whether or not the sale of an airline ticket was “an agreement or any memorandum of agreement”

Ratio and Reasoning: 

Chief Justice Barwick o The exemption of the ticket in this case fully occupies the whole area of possible obligation, leaving no room for the existence of a contract of carriage o With all the exemption clauses contained on the back of the ticket, there is no room for a contract to be made until the passenger actually boards the plane o “The situation is an example of the payment of a reward for an act performed at request with no antecedent promise by the person performing the act to do so

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Held that it was not a form of agreement, as the reservation of a seat on an airplane is an inquiry o “The issue of the ticket in my opinion, is mainly a receipt for the payment of the fare, though it also stipulates an occasion when the fare may not be refundable though actual carriage has not ensued o “It is my opinion that in any case, without the presence of these express provisions and in the absence of an express provision to carry, the ticket would not represent an agreement or a memorandum of agreement to satisfy the relevant portion of the schedule to the Stamp Act” Justice Stephen o “…The issue of a ticket in return for payment of a fare and the subsequent performance of the contract by the act of transportation, is to regard the ticket as offer, the contract being made upon acceptance of that offer by the passenger, usually by conduct” o “Acceptance will normally be by conduct and this conduct will either consist of an overt act consistent only with acceptance, or in its absence, of the passenger’s failure to reject the offer after he has had an opportunity of learning of the conditions upon which carriage is offered” o

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Case: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Pg 54-56) Citation: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) 1 QB 401 Procedural History:  

Held on appeal in the Court of Appeal on the judgment of Chief Justice Lord Goddard – found this procedure did not contravene the act Appeal dismissed

Material Facts: 

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The defendant’s operated a self-service pharmacist whereby customers could bring their selected items up to the counter to purchase, where the registered pharmacist oversaw the purchase and transaction – the pharmacist could prevent a customer from purchasing certain drugs It was questioned whether this procedure conflicted with the Pharmacy and Poisons Act 1933 (UK) which made it illegal for a person to sell certain drugs unless “the sale is effected by, or under the supervision of, a registered pharmacist”

Legal Issue: 

Whether the procedure of self-service in a chemist conflicted with the Pharmacy and Poisons Act 1993 (UK)

Ratio and Reasoning: 

Lord Justice Somervell o The plaintiffs point is that the items of the shelves is said to be an offer and the customers picking up of the items constitutes a contract, and thus the pharmacist has no power to stop the sale o Agreed with Goddard’s conclusion that although goods are displayed and it is intended for the customers to purchase what they like, the contract is not completed until he shopkeeper (or in this case, the pharmacist) completes the transaction and accepts the offer o Plaintiffs point raises the question that if a contract is formed when the customer takes the item off the shelf, then how can the customer swap the product for another if they see fit?

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Lord Justice Birkett o Adopted Goddards view that; “I am quite satisfied it would be wrong to say that the shopkeeper is making an offer to sell every article in the shop to any person who might come in and that person can insist on buying any article by saying “I accept your offer”” o It is an offer of the customer to buy and there is no sale effected until the buyer’s offer is accepted by the pharmacist

Case: Australian Woollen Mills Pty Ltd v Commonwealth (Pg 104-107) Citation: Australian Woollen Mills v Commonwealth (1954) 92 CLR 424 Procedural History:  

On appeal from the High Court of Australia Brought to the Privy Council, where the appeal was dismissed

Material Facts: The plaintiff claimed that a unilateral contract existed between them and the government through the Commonwealth Government’s ‘Wool Subsidy scheme’  The government subsidized purchases of wool by manufacturers of woolen products in order to enable those manufactures to supply the products at low prices  In 1964, the government sent letters to manufacturers that it would pay a subsidy on all wool purchased for domestic use by domestic manufacturers  The policy was discontinued in 1948, but aimed to ensure that each manufacturer would have a certain amount of subsidized wool in stock – however Australian Woollen Mills stockpile exceeded this amount, and the Commonwealth required the firm to repay the subsidy on that excess  The firm paid the excess but later sued to recover it, along with the unpaid subsidy on the April, May and Jun purchases Legal Issue: Whether a unilateral contract existed between the two parties 

Ratio and Reasoning: 

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The Court o The contract put forth by the plaintiff is thus seen to be of that type which is commonly said to be constituted by an offer of a promise for an act, the offer being accepted by doing of the act o “It is impossible, in our opinion, to hold that any contract was constituted at any stage binding the Commonwealth to pay a subsidy to the plaintiff, or to any manufacturer, inconsideration of a purchase of wool for local manufacture Privy council o The basis of the scheme was no contractual, rather it was administrative, and the letters contained statements of policy and not contractual offers o In terms of the letters, if the intention had been to provide for a series of contracts one would as between these parties have expected a form containing the provisions, which if disputes arose, would be construed and applied by the courts o The presence of a request does not establish a contract

Case: Goldbrough Mort & Co Ltd v Quinn (Pg 104-107) Citation: Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674

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Procedural History:  

First heard in the Supreme Court of New Zealand Then heard on appeal from the High Court of Australia

Material Facts: A suit by the appellants for specific performance of an agreement which the terms of which were contained in a specific document and was signed by the respondent  The document said that “In consideration of the sum of five shillings paid to me” that they would have the right to purchase his lands  at the price of $1 10s per acre calculated on freehold basis  Before the expiration of the week, and before the acceptance of the offer, he informed the appellant’s solicitor that he repudiated the offer, alleging that it had been made under a mistake  the appellants however accepted the offer within the week  The respondent also contends that there was never any complete contract – that the agreement was an agreement to make another agreement Legal Issue: Whether a contract existed between the two parties and the whether the defendant should be subject to specific performance 

Ratio and Reasoning: 

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Chief Justice Griffith o If there were no consideration, the offeree has the power to revoke the offer at any time even if they stipulated they would keep it open for a specific time o However, if there is consideration for the promise it is binding – the option given is not revocable o The value of the option makes it binding o “A suit for specific performance may be maintained in respect of the contract constituted by the letter of 8th February, and its acceptance by the appellants” Justice O’Connor o The appellants right under the contract is to accept within the week, and having fulfilled the condition they were entitled to all the benefits of the contract o “The respondent’s refusal to perform his part by withstanding his undertaking and preventing the appellants from accepting was a breach which entitled them to maintain an action for damages at law or if the case were deemed to be one for specific performance, entitled them to a decree for that relief” o The respondent undertook a valuable consideration to keep the offer open for a week and during that week he could not lawfully withdraw it o The respondent having withdrawn his offer during the week is liable at law to an action for depriving the appellants of their right of acceptance o The option given makes the contract irrevocable Justice Issacs o An option consists of a promise founded on valuable consideration to sell land on stated terms within a given time o The consideration does not alter the nature of the offer, it merely ensures its continuance by creating a relation in which the law forbids the offeror retracting it o Regards the parties to have entered into 2 separate contracts;  1  a unilateral contract that the offer should last for a week  2  the sale of the land

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Case: Mobil Oil Australia Ltd v Wellcome International Pty Ltd (Pg 59-70) Citation: Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 Procedural History: 

Heard on appeal from Justice Wilcox in the Federal Court of Australia

Material Facts: Mobil created an incentive scheme for its franchisees known as a Circle of Excellence – franchisees who achieved certain levels of scores in the Circle of Excellence were given rewards such as overseas holidays  Mobil’s general manager of retail marketing, Ken Stumbles told franchisees that Mobil was seeking to implement a “tenure for performance scheme” – whereby a franchisee who achieved a score of 90% or better in any year would be granted an extra year’s tenure (one-for-one proposal) o However, it was extremely difficult to achieve under the Petroleum Retail Marketing Franchise Act 1980 (Cth)  Stumbles said that the only way to give the extended tenure is to say that any franchisee who achieves a score of 90% or better in the Circle of Excellence judging in each of the 6 years following 1991 would be granted a 9 year renewal of their franchise without any costs (the nine-for-six proposal)  At subsequent regional meetings, franchisees were glen a brochure containing a tear off slip which franchisees could answer to “accept the challenge to exceed 90% in the Circle of Excellence judging and qualify for extra tenure”  Following management and policy changes, Mobil announced in 1994 that it would not grant renewals free of charge on the basis proposed by Mr Stumbles, but would discount the renewal fees of any franchisees who had succeeded in obtaining 90% or better in 1992/93  154 franchises commenced proceedings against Mobil – sought order requiring Mobil to grant the additional tenure or to compensate them for its loss  Justice Wilcox upheld the contractual claim based on the nine-for-six proposal made by 3 franchisees who had achieved 90% or better – ordered Mobil to grant a 9 year extension of each of the three without charge  The detriment the franchisees had suffered in reliance on Mobil’s promise did not justify holding Mobil to its promise – the relief claimed was disproportionate to the detriment suffered Legal Issue: Whether a binding contract existed between Mobil and its franchises who had completed the tear off slip and returned it 

Ratio and Reasoning: 

Full court; o Offer 
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