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LAW 1111 CONTRACT 1 UNIT NOTES ALL PAGE REF REFER TO “PRINCIPLES OF AUSTRALIAN CONTRACT LAW” 3RD EDITION BY GOOLEY TOPICS OFFER AND ACCEPTANCE CONSIDERATION PART PAYMENT ESTOPPEL REQUIREMENT OF WRITING INTENTION TO CREATE LEGAL RELATIONS TERMS EXCLUSION CLAUSES IMPLIED TERMS PRIVITY UNCERTAINTY AND COMPLETENESS

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THE FACT OF THE AGREEMENT LECTURE 2 (CH4) Offeror – is the person making the offer. Offeree – is the person to whom the offer is made. Promisor – the person making the promise , the person sought to be bound by the promise he or she has made. Promisee -the person to whom the promise was made and who seeks to enforce the promise (against the promisor) OFFER: Def: a statement of terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive – Neilson v Dysart Timbers Ltd Lefttkowitz v Great Minneapolis Surplus Store – a statement that is clear, definite and explicit and leaves nothing open for negotiation, it constitutes and offer, acceptance of which will consummate a contract. Harvey v Facey -bumper hall pen – supply of information, no implied contract to sell. Pattinson v Mann – similar to Harvey but stated that in some cases such a statement could be an offer, very often the absence of reference to matters which you would normally expect to be in the topic of negotiations is a strong indication that no concluded agreement had been made. CIRCULARS, CATALOGUES ETC. 4.18-26 Not offers but invitations to treat. Partridge v Crittenden – advert in a bird catalogue – potential buyer that makes the offer that the advertiser can accept or not. The court said if the advert was an offer they would be bound to sell to anyone that wishes to purchase, not practical with stock levels ect, this was not the intention. Lefttkowitz v Great Minneapolis Surplus Store- different result to Partridge- the avert was an offer that L accepted, they couldn’t change the terms. “the offer was clear, definite and explicit and leaves nothing open for negotiations, it constitutes and offer, acceptance of which will complete the contract. Carlill v Carbonic Smoke Ball – reward of $100 to anyone that gets influenza after using the product- deposited $1000 into a bank account to show willing. Mrs C contracted influenza and tried to claim the $100 reward. Company argues it was not an offer. HELD: the intention to make it an offer was found in the fact the company had deposited $1000 into a special bank account to show sincerity in the matter. DISPLAY OF GOODS: Pharmaceutical Company of Great Britain v Boots Cash Chemist- display of goods is not an offer but an invitation to treat. The goods here required to be sold under the regulated pharmaceutical goods conditions, hence why if it was an offer on the shelf anyone could buy them by accepting the offer and picking them up. By creating the offer at the register it allowed the sale to be monitored. A registered pharmacist was at the checkout. 4.23 AUCTION CASES: The general approach is that the auctioneer is inviting offers from buyers, acceptance by knocking the item down the contract is made (Payne v Cave) . Points to note: -

A bidder is free to withdraw before it is accepted , the auctioneer does not have to accept a bid and is not bound to accept the highest bid (AGC Advances v Nickerson) 4.27 Where it is stated that the highest bidder will be accepted then the highest bidder will get the contract – Harvela Investments v Royal Trust Co of Canada. Auctions without a reserve; often confusion, principle of Payne v Cave apply, no contract was made until the bid is accepted by the auctioneer. Auctions with a reserve; auctioneer is bound to sell to the highest bidder once the reserve price has been met. 4.33. 2

TENDERS: 4.34-43 A ‘tender’ is to test the market by calling for expressions of interest, these would be the offer that can be accepted or rejected – Meudell v Mayor of Bendigo. Harvela Investments v Royal Trust Canada – if the inviter states that they will accept the best tender then they must do so. Blackpool & Flyde Aero Club v Blackpool Council – tenders for pleasure flights – invitation to tender was detailed and specific, time specific, Aero club submitted on time but due to a council error the tender was not considered. HELD: invitation to tender was an offer to consider all entries, Aero club had accepted by submitting a tender that met all the councils requirement, thus council was liable for damages due to breach of contract. TO WHOM AN OFFER CAN BE MADE: Can be made to a specific person/ specific persons / class of people or the world at large. Only persons to whom an offer is made can accept eg. Carlill.(although the offer was open to be accepted by anyone, contracts only arose with those persons who actually performed the conditions of the offer) HOW TERMINATED? The issue of termination often arises when someone attempts to accept the offer and the other person claims the offer has already terminated/ is no longer open for acceptance. 1. Lapse of time: An offer terminates after either the time stated expires or a ‘reasonable time period has passed. What is reasonable? Depends on the facts and the circumstances – 4.45 Empirnall Holdings v Machon Paul- eg. an offer was made to sell bananas at a specific price, the courts would assume the offer would last say 6 months max but probably soon since bananas do not keep. 2. Rejection: An offer once rejected is terminated, it cannot be subsequently accepted, a counter-offer is an implied rejection of an offer. Hyde v Wrench- offer to sell a property for $1000, came back with a figure of $950 that offer was refused and then Hyde tried to accept the $1000 the court held that no contract arose because the originally offer came to an end with the counter offer, the subsequent $1000 was another offer that Wrench was free to reject. However, a request for information is NOT a counter offer, it does not terminate the offer and leaves it open to be accepted – Powierza v Daley. “the line between rejecting an offer and merely inquiring as to a possible variation is a fine one, but the basic test if the effect on a reasonable person standing in the shoes of the offeror”. 3. Revocation: An offer can be withdrawn at anytime before it is accepted- Routledge v Grant. Even if the offer has been stated to be open for a set period of time. Financing Ltd v Stimpson – the revocation of an offer must be communicated to the offeree in order for it to be effective. With revocation there is no postal rule, if a letter or telegram is used to revoke an offer it must be received by the offeree before revocation is accepted. (Byrne v Van Tienhoven – the letter must be received not from when its posted). Although the revocation must be communicated it does not need to be done directly through the offeree, it does not matter who communicates it so long as the information is reliable- Dickenson v Dodds 4.60. 4.64 emails communication rule – specified email address then its when it is delivered to their email system, however if no specific email is given then its when it is read. 3

Instantaneous communication- where the sound is drowned out then there is no communication of revocation – Entores v Miles Far East Corp Shuey v United states – the revocation must be through the same means as the offer was originally made – someone does not need to know that the offer has been revoked just that it can be at anytime until its accepted. When a person has stared to perform the terms of the offer but not fully completed and the offer gets revoked. Mobil Oil v Lyndel – prior to this case it was accepted that once someone had started to perform a contract then it could not be revoked however – this case rejected such a rule. “ it may be appropriate to find that the offerors entered into an implied ancillary contract not to revoke, or that the offeror will not be deprived of the chance of completing the act of acceptance” see facts of the case 4.67. 4. Failure of a condition: An offer may be made subject to an express or implied condition that a certain state of affairs remain unchanged until acceptance, if the state of affairs changes then the offer lapses – Financings Ltd v Stimpson – an offer to purchase a car from its owner lapsed and could not be accepted by the owner after the car was significantly damaged and its value subsequently depreciated. ACCEPTANCE: Acceptance are usually expressed but in some circumstances can be implied, the acceptance brings about consensus ad idem (meeting of minds). Household Fire & Accident Insurance v Grant – “the meeting of the minds is practically the foundation of English law upon the subject of formation of contracts” • • •

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Acceptance must be unequivocal – by accepting an offer it is clearly understood that there is nothing left to be negotiated by the parties. Must be in reliance to the offer – R v Clarke – the offeree must have knowledge of the offer. Acceptance must correspond with the offer – an acceptance must correspond exactly with the terms of the offer, any acceptance that adds terms or alters the existing terms is not acceptance, it’s a counter offer thus rejecting the original offer. Turner Kempson & Cov Camm 4.79. It could be though acceptance with an additional term to be accepted by the offeror see Dunlop v Higgins 4.80. Acceptance that does not coincide exactly with the terms of the offer due to some error or mis description by the offeree when the acceptance is made, does not necessarily mean there has been no valid acceptance: Carter v Hyde 4.81. Acceptance can be express or implied – an offeror cannot state that no response to an offer will be treated as acceptance – Felthouse v Bindley Empirnall Holdings v Machon Paull Partners – silent acceptance is insufficient – acceptance should be communicated…silence is rejection. See 4.83

CONTRACT FORMATION BY CONDUCT: Not always a clear offer and acceptance, sometimes the courts adopt a ‘global approach’. -

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The bell group v Westpac – conduct of the parties must look for the ‘objective intentions’ of the parties to be inferred from what is manifested by its communication and other conduct. Brogden v Metropolitan Railways – where there has been an offer and the subsequent conduct of the parties is consistent with the acceptance of the offer, but there has been no actual correspondence to accept the offer. Empirnall Holdings v Machon Paull Brothers – “whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted” Integrated Computer Services Pty Ltd v Digital Equipment Corp – Global approach – often difficult in a commercial arrangement to pinpoint offer and acceptance, a contract may be inferred by their actions or in 4

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the absence of words…whether the conduct of the parties in light of their surrounding circumstances shows an understanding of their agreement…the conduct of the parties must be capable, of proving all the essential elements of an express contract…it is necessary to look at the whole relationship” IN SUPPORT OF THE GLOBAL APPROACH: Marist Brothers – “such as the case in Integrated Computers , ‘ a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words” WA case to support global approach. See also 4.117 for global approach Toyota case. Also 4.90-93

Summary: ➢ Agreement can be reached by the conventional means of offer and acceptance. ➢ Where there is no express offer and acceptance, then it is possible for acceptance to be implied. ➢ It is possible for silence of the offeree to give rise to an implication of acceptance when considered in the light of the circumstances of the case. ➢ Where the conduct of the parties cannot be deconstructed into any form of offer and acceptance (implied or otherwise) then it is yet possible to form an inference of complete agreement by an application of the ‘global approach’.

THE POSTAL ACCEPTANCE RULE: The post night be used as a tool for accepting an offer then the acceptance is complete as soon as it is posted – Henthorn v Fraser. 4.98 Cowan v O’Connor BATTLE OF THE FORMS:4.111 -

Butler Machine Tool v Ex-Cell-O Corp – price escalation clause. Transmotors Ltd v Robertson 4.1116 – higher status document Tekdata Interconnections v Amphenol – last shot doctrine Toyota Motor Corp v Ken Morgan Motors – global approach Brambles Holdings v Bathurst City Council – “an agreement could be inferred even in the absence of an offer or acceptance, need to ask the questions…has mutual assent been manifested? What would a reasonable person in the position of the plaintiff and a reasonable person in the position of the defendant this as to whether there was a concluded bargain?” … “that post-contract conduct is admissible on the question of whether a contract was formed”.

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CONSIDERATION (L3) CH6 PROMISOR – person that made the promise. PROMISEE – person to whom the promise was made and is trying to enforce that promise, needs to prove consideration. A promise is supported by consideration NOT an agreement. Consideration is always necessary – Rann v Hughes Pollock 6.14: “an act or forbearance of the one party or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for the value is enforceable”. Better definition: Balfour v Balfour: “consideration is either some right, interest, profit or benefits accruing to one party OR some forbearance, detriment loss or responsibility given, suffered or undertaken by the other” 5.11 Ie if you have one or the other then consideration is satisfied. See 6.2 for explanation. It is the promise that must prove consideration (the person to whom the promise was made), he is the one trying to enforce the promise eg he suffered some detriment OR that the other person (the promisor) got some benefit or gain. Executory Consideration: -

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A contract can come into existence by the exchange of promises which neither party has performed. The parties are simultaneously the promisor (the party making the promise) and the promise (the party to whom the promise is made) The consideration given by the parties is then described as ‘executory consideration’ for a ‘bilateral contract’. Bilateral because there are 2 parties on the same level which have exchanged promises. It is executory because promises are made but have not been executed yet. To be contrasted with a ‘unilateral contract’ such as : Carlill v Carbonic Smoke Co classic unilateral example. (ie only binding on one side) a unilateral contract is only binding on one side, its an exchange of a promise for an act ie only one side makes a promise to do something. Carlill – the customer was not bound to do something but if they did then the contract became binding Further to this, acceptance in a unilateral contract can be by doing something and a person does not need to communicate that they are doing it, the communication is the demand for the reward or consideration. There is no general requirement to communicate the fact that acceptance of an offer made in the case of a unilateral contract. 4.97.

SPECIFIC ASPECTS OF CONSIDERATION: 6.16-25; 4.76-78. Consideration must be bargained for (see ref above ) this means that the promise or act is given at the request of the promisor and in reliance on the promisors promise – 6.16. in bilateral contracts its hard to image a situation where consideration does not satisfy the act of reliance. Unilateral = Australian Woollen Mills v The Commonwealth – 6.19 – considered the scheme as a government subsidy scheme and a promise of a gift. Carlill v Carbonic Smoke Ball = with regard to condiseration “ inconvenience sustained by one party at the request of the other is enough to create consideration” Has been suggested but wouldn’t follow Australian law : see page 1102/103. R v Clarke ( WAS HELD THAT= an acceptance of the offer must be in reliance upon that offer) – a promises performance of an act requested by the promisor could constitute consideration even if it was done without reliance upon the promisors promise. 6

ONLY A PARTY PROVIDING CONSIDERATION CAN ENFORCE A PROMISE: Doctrine of consideration: must provide consideration for a promise 1- Consideration must move from the promise, and 2- It need not move to the promisor. PAST CONSIDERATION IS NO CONSIDERATION: So called past consideration is no consideration, is a situation where something is done before any promise to pay for it was made. Attorney General for England v R – an act already done without reference to a promise does not satisfy the concept of an exchange which underpins the law of consideration. Roscorla v Thomas – “free from vice” which wasn’t true… R sued T on the basis that there was breach of that promise, he failed since there was no consideration for that promise, the earlier purchase of the horse was past consideration. Fresh consideration had to be given for Thomas’ promise to be enforceable. However: Pao On v Lau Yiu Long – where there has been the performance of an act followed later by a promise to pay for that performance, the promise to pay will be supported by consideration and therefore enforceable if: -

The earlier act was done at the promisors request The parties understood at the time that the act was done it would attract some payment or other form of remuneration Payment, of some other form of remuneration, must have been legally enforceable had it been made in advance of the performance of the act.

Also, Re Caseys Patents; Stewarts v Casey – see lecture summary page 13 L3. CONSIDERATION CANNOT BE ILLUSIONARY: Relates to circumstances in which it is claimed that there is consideration by the promise of the performance of some act, but where there is also a discretion as to whether to perform that act. The conditional nature of the obligation to perform precludes the promise from being consideration. Placer Dev Ltd v The Commonwealth also British Empire Films Pty Ltd v Oxford Theatres 6.36. CONSIDERATION NEED NOT BE ADEQUATE -IT MUST BE SUFFUCIENT. The threshold of what is legally accepted as consideration, must have value in the eyes of the law. “consideration does not have to be commercially adequate to be sufficient in law” – Attorney-General v R. Wolfe v permanent Custodians – “the courts will not seek to measure the comparative value of the defendants promise and of the act or promise given by the plaintiff in exchange for it, nor will they denounce an agreement merely because it seems unfair…it is legally sufficient to sell something of value for a peppercorn… the courts will not balance one side against another. The parties are presumed to be capable of appreciating their own interests and striking their own bargains”. Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd – in cases where the consideration is only of a token value the expression ‘nominal consideration’ is used. 7

Thomas v Thomas – lease of a house for an annual rent of $1 – consideration was sufficient as it was of some commercial value. Can there be consideration where something has no commercial value? Dunton v Dunton – a promise by a wide to “conduct herself with sobriety, and in a respectable orderly and virtuose manner” was held to be sufficient consideration for the husbands promise to pay the wife certain maintenance payments following their separation. N/B equitable remedies would not be available to someone that only have ‘nominal consideration’. The policy behind the common law acceptance of the sufficiency of consideration was discussed in: Woolworths Ltd v Kelly – Kirby gave the following points: 6.42 1. 2. 3. 4. 5. 6.

Different people have different values. Judges are not trained – cant put their opinions on the intentions of the parties. If the courts had to judge consideration would lead to an influx of cases. Disputes would increase into the adequacy of consideration. Other avenues for relief – eg estoppel. Contract law reflects the doctrine of freedom, not for the courts to judge the adequacy of their bargains.

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