Contract LAW EXAM Notes PDF

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LLAW1214 CONTRACT EXAM NOTES

CONTRACT LAW EXAM NOTES

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LLAW1214 CONTRACT EXAM NOTES

A CONTRACT is a legally enforceable agreement that involves a set of promises, given for something in return. Common Law meaning ‘Common law’ can be distinguished from legislation or statutory law but that has two main categories:  Equity (rules and principles deriving from old Chancery court)  Common law (rules deriving from the other courts).  You can only rely on remedies other than equity when you have an enforceable contract.

Heading (What is the topic?) • Issue (What do you want to know and why?) • Rules (What are the legal rules and authorities?) • Application (How should the rules be applied to the facts? What facts make you think the rule has been complied with or not?) • Conclusion (What is your final statement?) •

The following will provide advice to (the client) in relation to their potential claims against the (X) to sue for compensation. -Formation: Is there a contract? (and what type?)* -Enforceability: Is this contract enforceable?* -Terms: What is in the contract? -Construction & Interpretation: What does what is in the contract mean? -Performance & Breach/Repudiation: Has what is in the contract been performed? -Remedies: What contractual remedies are available? How many options? *Or, where there is no enforceable contract, what equitable remedies are available?

AGREEMENT (FORMATION) For a binding contract to be formed, it must first be established that the parties have reached an agreement. The framework of offer and acceptance is used to establish when an agreement has been concluded by determining objectively whether the ‘meeting of minds’ or consensus between the parties constitute valid aceptance (Smith v Hughes)

Offer. -

An offer is a definite and clear undertaking to be found contractually. An offer is an expression to another of a willingness to be bound by the stated terms (Australian Woollen Mills Pty Ltd v The Commonwealth)

Bilateral Contracts – a promise for a promise Under Bilateral Contracts each party undertakes to the other party to do or to refrain from doing something, and in the event of his/her failure to preform his/her undertaking, the law provides the other party with a remedy. (United Dominions Trust Ltd v Eagle Aircraft Services Ltd) Unilateral Contracts – a promise for the complete performance of an act. Under unilateral contracts the promisor undertakes to do or to refrain from doing something if another party, the promisee, does or refrains from doing something, but the promisee does not at the time of the offer undertake to do or to refrain from doing that thing. (United Dominions Trust Ltd v Eagle Aircraft Services Ltd) Offers to the Public at Large: An offer can be made to the public at large. (Carlill v Carbollic Smoke Ball Company) Requirements - Communicated to the person whom it is made before it can be accepted - Made to a single person or the world at large - Distinguished from an option or an invitation to treat

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LLAW1214 CONTRACT EXAM NOTES - If the offer is accepted there will be an agreement. What is not an Offer? Mere Puff  Sometimes statements can be regarded only as ‘mere puffery’- the claims are made only for advertising purposes and mean nothing. (Carlill v Carbollic Smoke Ball Company) Supply of Information  The supply of information is not an offer.  A request for information must be discerned from a contractual offer. A clearer indication of a preparedness to enter into a contract, than merely providing terms or information upon which a party maybe prepared to enter into such a contract, is needed. (Harvey v Facey). Invitation to Treat  An invitation to treat is an indicator of a parties willingness to negotiate entry into a contract. It is a technique used by a party who desire another party to make an offer and cannot be construed or the terms be accepted as if it were a valid legal offer in itself. (Carlill v Carbollic Smoke Ball Company)  The display of goods in a store is an invitation to treat. (Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd)  An advertisement that gives information about goods for sale and their price will generally be an invitation to treat rather than an offer (Partridge v Crittenden) - Advertisements in newspapers and magazines (unless advertisement supplies terms which indicate the retailers intention to be bound – a promise rather than a mere invitation (Partridge v Crittenden)). - On the internet When might there be an offer? Auctions  Each bid represents an offer, which the auctioneer may reject or accept. Acceptance of an offer occurs, and an agreement is formed, when the auctioneer knocks down the property to the successful bidder (AGC (Advances) Ltd v McWhirter).  Because the agreement is not formed until the bid is knocked down, the bidder can withdraw a bid (offer) before this time (Payne v Cave).  Even in an auction without a reserve, each bid represents an offer that could be accepted or rejected by the auctioneer. (Barry v Davies 2000). Tendering  An advertisement for tenders will generally be the same as an advertisement for an auction, which is akin to an invitation to treat. Therefore no liability will be incurred if the person does not accept any of the tenders or even consider them in a bona fide way. Each tender will be considered an offer, which can be accepted or rejected. (Spencer v. Harding). Communication of an Offer  For an offer to be valid it must be communicated to the offeree by the offeror, or someone authorised by the offeror (Cole v Cottingham).  An offer becomes effective once it is communicated to the offeree (Taylor v Laird).  Acceptance must take place in reliance upon an offer. If the offeree performs a particular act that corresponds to the terms of the offer without knowledge of the offer, there is no agreement, and no contract comes into existence (Tinn v Hoffman & Co).  If it is an offer to the world at large, the offer could be accepted by any fulfilling the requirements of the offer (Carlill v Carbolic Smoke Company). Termination of an Offer An offer may be terminated at any time before it is accepted. However, once an offer is accepted it becomes irrevocable. (Goldsbrough Mort & Co Ltd v Quinn)

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LLAW1214 CONTRACT EXAM NOTES

Withdrawal by the offeror  Before acceptance, an offer can be freely revoked if effectively communicated (Byrne & Co v Leon Van Tienhoven & Co 1880).  Not possible if there is a promise to keep option open (Goldsbrough Mort & Co v Quinn).  In unilateral contracts, the offer cannot be withdrawn after the offeree has begun to perform the necessary conditions of acceptance of the offer and completion of the contract. (Abbot v Lance). Lapse of time  An offeror may stipulate that his or her offer must be accepted within a certain period of time, and if the offeree fails to accept, the offer will lapse. If no time is prescribed, the offer must be accepted within a reasonable time. (Ramsgate Victoria Hotel Co v Montefiore). Failure of a condition subject to which the offer was made  

If a condition upon which the offer is made is not fulfilled the offer will lapse (McCaul Pty Ltd v Pitt Club Ltd). Financings ltd v Stimson

Death  If the offeror dies and the offeree has not been notified of that death, it is still possible for the offeree to accept the offer, thus binding the offeror’s estate. If the offeree has been notified of the death he/she cannot accept the offer (Coulthart v Clementson; Fong v Cilli).  Nor can a representative of the offerors estate accept the offer on their behalf therefore the offer lapses (Reynolds v Atherton).

Acceptance: Assenting to the terms proposed by the other party (Smith v Hughes 1871). An agreement is made when an offer is made, and the offeree accepts that offer (Clarke v Earl of Dunraven) Requirements of Acceptance There are two requirements to satisfy for valid acceptance to occur: 1. The offeree must agree to accept the terms of the offer 2. This information must be communicated to the offeror. Acceptance must correspond to Offer (Hyde v Wrench 1840). Offeree must have knowledge of and act in reliance to an offer  The offeree must have knowledge of the terms of the offer at the time of purported acceptance. Acceptance is not valid if two identical offers are made or if a party performs the act of acceptance without knowledge of the offer. (Tinn v Hoffman). A Counter Offer is not Acceptance  If a counter offer is made, the original offer is rejected and the counter offer can then itself be accepted or rejected. Once a counter offer is made and the original offer rejected, the offeree can no longer accept the original offer (Hyde v. Wrench) Acceptance must be Unqualified  If there is an agreement on all terms of the offer, and the parties intend to be bound immediately, this would be considered unqualified acceptance of the offer (Masters v Cameron).

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LLAW1214 CONTRACT EXAM NOTES Mere Inquiry does not Constitute Acceptance  After receiving an offer, an offeree may want further clarification of one or more terms. This inquiry can at most, only communicate interest but not acceptance nor rejection of an offer. (Stevenson Jaques v McLean) Acceptance by Silence  The offeror cannot stipulate silence to constitute consent under any circumstances (Felthouse v Bindley). Acceptance by Conduct  An offeror may stipulate the manner of acceptance by advising the offeree that if he/she wishes to accept the offer, the offeree should perform stipulated acts waiving the need to communicate acceptance. Acceptance can be express or implied (Carlill). Acceptance through electronic a) General Rule When the mode of acceptance is instantaneous communication, the general rule of law is that the contract will be formed when acceptance of the offer is communicated to the offeror and that communication is received (Entores L D v Miles Far East Corporation)  Signature conclusive of acceptance, even if terms not read (L’Estrange v Graucob).  The Electronic Transactions Act 1999 (Cth) in force in all Australian states provide that where a law requires a person’s signature, that requirement is taken to have been met if an appropriately reliable method has been used to indicate the person’s approval and the person consents to the requirement being met by that method. Postal Acceptance Rule 

The postal acceptance rule is the exception to the general rule that acceptance occurs when it is communicated to the offeror.

a) Statement of the rule  Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is completed as soon as it is posted (Henthorn v Fraser). 

The rule operates only where the post is an acceptable method of communication between the two parties (eg. the offer was made by post or it is stipulated in the offer that the post is an acceptable method of communication) (Adams v Lindsell).

b) To what communication does the rule extend  The postal acceptance rule applies to forms of communication that are similar to mail but does not extend to any form of instantaneous communication, even if that communication bears some similarities to communication by post. (Coot Pty Ltd v Admin Management Pty Ltd). c) Where is the rule displaced? The rule is displaced if the court decides that it was not within the contemplation of the parties that the post was an accepted method of communication. Whether the postal rule is displaced turns the intention of the offeror. If the offeror says or implies that actual notification is required before an agreement if formed the postal acceptance rule will be displaced (Bressan v Squires). d) Revocation of the acceptance prior to receipt  The offer is formed when the letter of acceptance is posted. A subsequent purported withdrawal of that acceptance will be ineffective.  There is still no definitive Australian authority on the issue, only early New Zealand dicta that’s suggests that it cannot be withdrawn in this way and an even earlier Scottish authority to suggest that it can!! (Weinkheim v Arndt (NZ); Dunmore (Countess) v Alexander (Scottish)).

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LLAW1214 CONTRACT EXAM NOTES

Acceptance in Unilateral Contracts  Acceptance commonly by conduct: The requirement for acceptance to be communicated is often impliedly waived. Acceptance is affected by the offeree by performing the requirements that are specified by the offeror (Carlill v Carbolic Smoke Ball Company). If an offer is made to the public at large it can sometimes be accepted by a number of people. In Carlill’s Case the offer was capable of acceptance by anyone who qualified under the terms of their offer (eg. anyone who purchased a smoke ball, however, in the case of a reward, while many people may have the information which qualifies them for the reward, only the first person to come forth will be eligible).

CERTAINTY

AND

COMPLETENESS :

Another requirement of a legally enforceable contract is that the terms must be sufficiently certain. Concepts of uncertainty or vagueness are relevant to a determination of whether there has been an offer made which is capable of acceptance, and whether the parties could have had the requisite intention to enter into legal relations. If an offer is so vague that the respective obligations of the parties on acceptance are unclear, it is unlikely to be a valid offer in legal terms. Similarly, if the terms of the offer are vague and uncertain, it may indicate that the parties lack intention, not having yet reached the stage of negotiations at which each intends to be legally bound to the other party. Statement of the Rule In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intentions; in other words the consensus ad idem would be a matter of mere conjecture (G Scammell and Nephew Ltd v HC and JG Ouston). 

 



A contract containing language that is so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention will be unenforceable The uncertainty may relate to one of the pivotal terms of the agreement or may go to the very heart of the agreement.(G Scammell and Nephew v HC & JG Ouston). Even where uncertain or ambiguous language is not used, if the parties have not agreed on all of the essential terms of the agreement, the contract will be unenforceable. ( Loftus v Roberts). Sometimes the court will label a term meaningless or illusory. A meaningless clause is one to which a meaning cannot be attributed and will be treated the same way as an uncertain clause. An illusory clause has an identifiable meaning but will be treated as uncertain as it promises an illusory term. A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations (Thorby v Goldberg).

For example: Australian Woollen Mills case: 1. No offer/unilateral contract - No stated price ‘offeree’ pays for promise - No offer made in order to induce act (No clear, certain and complete offer) 2. No consideration - Complete discretion performance subsidy (illusory promise) 3. No intention - No statutory authority to make payments - No power to commit to crown - No commercial interest to purchase wool (incomplete terms/unreasonable).

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LLAW1214 CONTRACT EXAM NOTES Severance The invalidity of one term will not necessarily mean that the whole contract will be unenforceable. In some circumstances the invalid term can be severed and the remainder of the contract will be enforceable. Generally, if the parties would have intended to be bound in the absence of an uncertain clause, the clause can be severed and the remainder of the contract is enforceable (Fitzgerald v Masters). Waiver If a clause is inserted in a contract for the benefit of one party only, but is drafted in such vague terms as to make it void, that party can choose to waive the benefit of the clause and have the remainder of the contract specifically enforced. (Whitlock v Brew). Incomplete agreement The courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement for the parties to agree at some time in the future (Booker Industries Pty Ltd v Wilson Parking Qld Pty Ltd).

CONSIDERATION Consideration is the price that is asked by the promisor in exchange for their promise or the doctrine quid pro quo (tit for tat), that something must be given in return for a promise to make it binding. Although consideration is not an essential contractual element in many Australian jurisdictions, the common law provides that for an agreement to be binding, the promise must provide consideration (payment) for the promise they have received. The price does not have to be of monetary value, but requires some ‘detriment’ on behalf of the promisee and the promisor need not receive any tangible benefit. i.e. Carlill. Consideration in Bilateral Contracts A bilateral contract is formed where the parties exchange promises. At the time agreement is reached, each party makes a promise. The price paid for that promise – the consideration – is the other party’s promise. Each party promises to do an act or refrain from doing an act. (United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd) Consideration in Unilateral Contracts Unlike bilateral contracts, a unilateral contract does not constitute an exchange of promises. The only promise is the one made by the promisor to do or refrain from doing an act if the other party does or refrains from doing an act. Thus, the act or forbearance itself, rather than the promise, constitutes the consideration.(United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd). Rules governing consideration Consideration must move from the promise but need not move to the promisor. It will generally be the case that consideration moves from the promisee to the promisor, whether the promisee promises to pay money, or do or forbear from doing an act. However, it is sufficient if consideration moves from the promisee to a third party at the direction of the promisor (Currie v Misa). However, if promisor A asks C to provide payment in consideration for A’s promise to B, that will not constitute good consideration. a) Joint promisees When a promise is made to joint promisees, it is enough if consideration is given by one on behalf of all because it is then deemed to have moved from all (Coulls v Bagot’s Executor & Trustee Co Ltd)

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LLAW1214 CONTRACT EXAM NOTES b) Overlap with doctrine of privity The doctrine of privity provides that only a person who is a party to a contract can sue on it. A promisee is only able to sue on a promise if the promisee has given consideration for the promise. (Tweddle v Atkinson). Consideration must be sufficient but not adequate a) General principle To be valid, consideration must be sufficient in that it is ‘something which is of value in the eyes of the law’. Consideration may be valid although it cannot be given monetary equivalent – A moral obligation or worthy motive does not constitute consideration (Thomas v Thomas). b) Consideration need not be adequate Consideration must be sufficient but need not be adequate. The court will not enquire into the adequacy or value of the consideration. i.e. Lord Somervell of Harrow expressed the view that a 'peppercorn' could constitute valuable consideration (if stipulated by the promisor) even if the promisor was not fond of peppers and would discard the corn (Chappell & Co v Nestle Co Ltd).   

Carlill in which the inconvenience associat...