Contract Law - Formalities PDF

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Contract Law – LAWS105 – Johnson and budrush - undue influence – 2-3 The rule of law – graphs and numbers

Formation of Contract –

What is a contract? A contract is a legally binding agreement. Legally binding – The law will compel the person making the promise (Promisor) to perform, or to pay damages to compensate the person to whom it was made (Promisee) for nonperformance. Example of a non-binding agreement – Bill asked Betty to go to the movies with him. Although they agreed on the meeting time and place, Betty changed her mind and didn’t go. Bill threatens to sue Betty for his taxi fare and other expenses. Bill cannot succeed = Bill and Betty did not intend the agreement to go to the movies to create legally enforceable obligations.

The Difference between a promise and a contract – For a promise to give rise to a contract it must amount to an undertaking by the promisor in exchange for something sought in return from the promisee. – further research E.g A promises to give B her car if B pays A $10,000.

Nature of Contract –  Contractual obligations are private and self-imposed (ie. Unlike criminal law) -

Something that a person is legally forced to do through having signed a contract to do. Usage. To fulfil your contractual obligations. Contractual obligations are those duties that each party is legally responsible for in a contract agreement. In a contract, each party exchanges something of value, whether it be a product, services, money etc. on both sides of the agreement, each party has various obligations in connected with this exchange

E.g (Some exceptions = mandatory contracts for certain insurance contracts, eg. Third party personal injury for motor vehicles and workers compensation).

 Parties to the contract decide between themselves: -

Their obligations under contract; and The consequences of the breach of their obligations. (however, the use of standard form contracts differs from this idea of the parties negotiating terms.)

Justification for contract law Statue law can limit contractual freedom, for example, for the protection of consumers (to prevent unfair terms, or misleading conduct). If contracts are private, voluntary undertakings – Why should the law enforce them? – Two main justifications: 1. The law enforces contracts because of the importance of contracts to our society (almost every transaction by a business will involve a contract). The law provides remedies for breach of contract. 2. To remedy injustice

Australian Contract Law  Derived from England – but increasingly diverging with the development of Australian common law and statue law.

 Common Law: contract law is largely judge-made law.  Statues: there is not an Australian “Contract Act” (like the Indian Contract Act 1872). However, increasingly statutes in Australia are impacting on areas of contract law -

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Eg, the Insurance Contracts Act 1884 (Cth) (with the stated purpose of reforming the law “so that a fair balance is struck between the interests of insurers, insurds and other members of the public”), and Eg, the Competition and Consumer Act 2010 (Cth) (which contains provisions dealing with: misrepresentation, implied terms, manufacturers’ liability and unconscionable conduct).

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Agreement the central requirement of a contract is the existence of an agreement between two parties concerning the promise in question. What is to be understood by this requirement and how the law determines whether it is satisfied (and if it is, when and where this happened) is considered below; in particular we will examine:

 The nature of agreement  The offer and acceptance process used in connection with this requirement

 The situations in which agreements can be reached without discernable process of offer and acceptance

 The need for the agreement to concern a promise, and the distinction between bilateral and unilateral agreements.

The nature of Agreement An agreement is an understanding between two parties that one of them will do something, or will promise to do so, in return for the other doing something, or promising to do so. Thus, there are two elements. A meeting of the minds of the parties (which is why agreement is often referred to as a consensus ad idem) and at least one promise it is the need of the second element that distinguishes a contractual agreement from other types of agreements. A meeting of minds - At least 1 promise = Contractual agreement For example, while, colloquially, we may say that A and B have reached an agreement if, after discussion, they reach a common understanding that a particular car has a new engine, this would not be a contractual agreement as there is no promise involved. On the other hand, it would be a contractual agreement if A promised B that the engine was new in return for B making a promise, or actually doing something nominated by A It is also essential that the agreement is entered into voluntarily; that is it must not be the result of illegitimate pressure being exerted by one party to the other. However, although the concepts of ‘consensus’ and ‘free association’ lie at the heart of ‘agreement’ in contract law, they are interpreted narrowly in particular:

 Whether the parties have reached an agreement is determined objectively, not subjectively

 Agreement is required only about entering into the contract and its terms; it is not concerned with the desirability of doing so, or what motivates the parties

 An agreement can exist even thought one, or both, of the parties believes that they 

were obliged to enter into it because of their economic or personal circumstances An agreement can exist even though one of the parties is not happy about its terms and has entered into it only reluctantly

As a result, where one party is in a superior bargaining position to the other, as a general proposition, the law does not prevent that power being used to drive a bargain that is overwhelmingly in that party’s favour. However there are two important qualifications to this proposition. First, the general or ‘unwritten law’ will render a contract voidable at the instigation of the weaker party if the agreement was induced by the use of ‘illegitimate’ pressure (chp 14) or was attributable to some other form of reprehensible conduct on the part of the dominate party (chp 15 & 16) Second the Australian Consumer Law (ACL) creates a

number of ‘Consumer guarantees’ in favour of consumers that cannot be excluded by an agreement between the parties.

Offer and acceptance In most cases, the issue of whether an agreement has been reached is determined by analyzing the dealings between the parties in terms of ‘offer’ and ‘acceptance’. Such an analysis seeks to determine whether one party has communicated to the other an offer which the latter has accepted; if this is found to have occurred, the parties are said to have reached an agreement. Although the parties may not have used the language of offer and acceptance in their communications, it is usually possible to discern from their words, or conduct, what the law regards as one or the other. In substance, an offer is a promise by one person (the ‘offeror’) to do something, or not to do something, if the person to whom it is addressed (the ‘offeree’) responds in a stipulated manner. Any form of words or conduct intentionally communicating such a promise can amount to an offer. Examples include:

 Stating a willingness to sell goods, or supply services, in exchange for a stipulated price  Advertising that a reward, or a prize, will be paid to anyone providing certain   

information, or acting in a certain way Making a bid at an auction Displaying an automatic vending machine, or a sign, proffering goods or services in exchange for payment Submitting a tender for the supply of goods or services for a stipulated price

An Acceptance is an affirmative response to an offer by the offeree, in effect, the offeree saying ‘yes’. The clearest way for the offeree to do this is to literally state, orally or in writing, that the offer is accepted. However, in some cases this is impractical. Thus, unless there is a stipulation to the contrary, any form of words or conduct can amount to an acceptance, so long as an intention can be discerned on the part of the offeree to accept the offer on the terms stipulated. The process of analyzing the communications and conduct of the parties in terms of offer and acceptance is used to determine not only whether an agreement has been reached, but also when this occurred and where. These issues can be important because of the bearing they have on such matters as the terms of the contract and the jurisdiction in which disputes should be adjudicated. Subject to the qualifications to be considered later, the general rule is that an agreement is reached when and where the offeree’s acceptance is communicated to the offeror.

The nature and duration of offers

To whom can an offer to be made? An offer can be made to a particular person, to a group, or to the whole world. Offers distinguishing from invitations to deal Most legal systems draw a distinction, based upon the intentions of the party making the communication, between an offer and an invitation to deal (sometimes referred to as an ‘invitation to treat’). A communication will be characterized as an offer if the party making it intended that an affirmative response would immediately give rise to an agreement. If, on the other hand, the communication was intended to merely initiate negotiation, it will be characterized as an ‘invitation to deal’. The distinction between the two is important; if a communication is characterized as an offer, an affirmative response will create an agreement, whereas if it is characterized as an invitation to deal, such a response can only be an offer which the party issuing the invitation may accept or reject. The types of communication that have raised this issue include displaying goods in shops or shop windows, conducting or advertising auctions, advertising goods or services for sale, circular promoting sales, calls for tender, operating a public transport system, displaying an automatic vending machine, and issuing tickets.

Auctions If a sale of property by auction is advertised and bids called, is that communication an offer to sell to the highest bidder, or merely an invitation asking bids to be made? The answer to this question is complicated by the fact that an auction involves three parties – the seller, the auctioneer and the bidder. In addition, the auction may be advertised as being subject to a ‘reserve price’ (a price below which the property will not be sold) or ‘without reserve’ (that is, without a minimum or ‘reserve’ price being set by the seller). The law’s response to these issues is discussed in AGC (Advances) Ltd v McWhirter

Advertisements Advertisements are the quintessential example of invitations to deal because this accords with what advertisers usually intend. Were it otherwise, each person who responded to an advertisement would thereby make a contract with the advertiser, with the result that, should the advertisement generate more response than anticipated, the advertiser could be faced with contracts they have no capacity to honour. This problem is avoided by making the advertisement only an invitation to deal: responses can then only be offers made to the advertiser and can be rejected when supply is exhausted. However, this is not always the advertiser’s intention, as Carlill v Carbolic Smoke Ball Company (pp 30-1, cntbk) reminds us. It is

always crucial to examine the facts of individual cases and be wary of generalization. The following case is more recent illustration. – Lefkowitz v Great Minneapolis Surplus Store

Bait Advertising The distinction between an offer and an invitation to deal facilitates ‘bait advertising’ by retail stores. This is the practice of advertising certain goods at extremely low prices to attract customers to the store with the intention of selling them other goods, at normal prices, rather than, or in addition to, those advertised. By ensuring that such advertisements are invitations to deal, rather than offers, retailers are able to avoid exposing themselves to the risk of having to supply any (or many) items at the advertised price. This practice is now prohibited by the Australian Consumer Law (Sect 35)

Offers distinguished from requests for information or statements of possible terms For the same reason as those discussed in relation to invitations to deal and with the some consequences, offers are also distinguished from statements of the terms upon which a person may be willing to contract and responses to requests for information about the subject matter of a possible contract. As a result, the response to such a statement cannot be an acceptance; at most it will be an offer which the maker of the initial statement can accept or reject. For example, in Harvey v Facey the plaintiffs asked the defendant at what price they would be prepared to sell certain land. The defendants replied with a certain figure which the plaintiffs, treating it as an offer, accepted. The Privy Council, however, held that the defendants reply, rather than being an offer, was merely a statement of the minimum price at which they may be willing to sell. Therefore, the plaintiff’s communication could not amount to an acceptance; it could only be an offer which, on facts the defendants had not accepted. Similarly, in Gibson v Manchester City Council, a letter from a municipal council, whose policy at the time was to sell council houses to tenants, and which read in part ‘The corporation may be prepared to sell the house to you at the purchase price of $2,725 less 20 per cent = $2,180 (freehold)’ was held not to be an offer to sell but merely a statement of the terms upon which it might be willing to sell in due course.

Termination of offers An offer may be terminated in several ways. Once this has happened, it can no longer be accepted and thereby give rise to an agreement.

Revocation Revocation occurs when an offer is withdrawn and the offeror communicates this decision to the offeree. An offer can be revoked at any time before it is accepted. Once acceptance has occurred this is no longer possible. This means that, in a given case, which occurs first (revocation or acceptance) will determine whether or not a contract is formed. Also, an offer cannot be revoked if the offeror has granted the offeree an option covering it; for present purposes, an option involves a promise by the offeror not to revoke the offer, made in exchange for consideration provided by the offeree. What is required to revoke an offer and other aspects of revocation are discussed in the following case – Dickinson v Dodds pg 41 Revocation will not be effective unless, and until, it is communicated to the offeree. In this connection the postal rule does not apply. The leading case establishing these propositions is byrne v van tienhoven Where an offer has been directed to a particular individual or identifiable group, revocation must be communicated to that person or group. However, in the case of an offer made to the world at large, as in Carlil vs Carbolic Smoke Ball Company , requiring this level of communication would be impractical. Therefore, in such cases, it is sufficient to publish a notice of revocation that is at least a prominent as the notice making the original offer. This was the conclusion reached by the United States Supreme Court in shuey v United States, concerning a proclamation published in newspapers offering a reward to anyone providing information leading to the arrest of a named individual who was believed to have been involved in the assassination of President Lincoln. This offer was revoked by proclamation that was publicized in a similar manner. However, unaware of this revocation, shuey provided the information sought. His claim was rejected on the ground that the offer had been revoked effectively by the publication of the second proclamation.

Rejection, or counter – offer, by the offeree Rejection is a communication saying, in effect, ‘no’ to an offer. A counter offer, on the other hand, is a communication by the offeree indicating that the offer is acceptable in substance, but seeking to vary the terms of the proposed contract. Although different in intent, at common law both have the effect of terminating the offer so that it can no longer be accepted. The leading authority is hyde v Wrench. The defendant offered to sell land to the plaintiff for $1,000; the plaintiff replied offering to buy the land for $950. The defendant refused to sell at this price whereupon the plaintiff said that he would pay $1,000 as the defendant had originally offered. The defendant refused and the plaintiff commenced proceedings seeking specific performance. The claim failed; the court held that the plaintiff’s offer to buy for $950 amounted to a rejection

of the defendant’s offer and that this had the effect of terminating it – a state from which it could not be revived by a subsequent expression of acceptance. Because it has the effect of terminating the offer, a counter offer must be distinguished from a mere request by the offeree for information, or clarification. Such requests leave the offer open. The importance of this distinction is illustrated by Stevenson, jaques and Co v McLean. Stevenson, in response to a written offer from McLean, telegrammed the latter asking whether the time of delivery and payment were negotiable. McLean treated this communication as a rejection and sold the items in question to a third party. However, the court held that it was merely a request for information, with the result that Stevenson’s subsequent acceptance of McLean’s offer created a contract. A counter – offer should also be distinguished from a request to alter the terms of the offer. If the offeror agrees to do this and the revised offer is then put to the offeree who accepts, a contract will be created. If the terms of a purported acceptance differ in any meaningful way from those of the offer, it would appear that at common law this communication will amount to a counter – offer and, as such will terminate the offer.

Lapse of time If an offer specifies a time within it must be accepted, acceptance after that time will be ineffective unless the offeror agrees to waive the stipulation. However, if the offeror intentionally avoids receiving an acceptance within the stipulated time, acceptance communicated after that will still be effective. If the duration of an offer is not stipulated, the offer will come to an end after a reasonable time; what is reasonable depends upon the circumstances of the case.

Death As a general rule, an offer will lapse with the death of the offeror and cannot be accepted thereafter. However, there are at least two qualifications to this rule. First, If the offeree does not know of the offeror’s death, acceptance may still be possible unless this is precluded by the terms or nature of the offer, that is, the proposed transaction contemplated personal performance by the offeror’s death, acceptance may be possible if the terms of the offer contemplate that the contract could be performed by the offeror’s estate, or if the offer was accompanied by an option not to revoke for a period of time that had not yet elapsed. Whether the death of the offeree terminates the offer, so that it cannot be accepted by the person’s estate, similarly appears to depend upon whether the offer was personal to the deceased or not. Thus, if it is clear that performance was to be by the offeree alone, or that only they were to benefit from the proposed contract, the offer will lapse.

Failure of a condition If an offer is made conditional upon the occurrence or non – occurrence of an event, or state of affairs, then the offer will...