Contract notes 1 PDF

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Intro to Contract Exam Notes...

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Responsible – refers to the care and consideration a person has for the outcome of their actions. Liable – to be liable for something means to be legally responsible for something

1.0 Offers 1.1 Is there a contract? The elements of a legally enforceable contract are: • Offer • Acceptance • Consideration • Intention to be legally bound • Capacity • Legality 1.2 The Offer An offer “must take the form of a proposal for consideration which gives the offeree an opportunity to choose between acceptance or rejection.” Heydon JA in Brambles Holdings v Bathurst City Council (2001) 53 NSWLR 153

1.2A When does an offer become effective An offer comes into being when it is clearly communicated to the offeree. It is not possible to accept an offer you are not aware of. See R v Clarke

1.3 Offers to the World at Large Offer can be made to the world/public at large. This offer may not be directed to any particular person but instead to anyone who sees/hears of the offer. Sometimes an offer to the world at large can take the form of an advertisement, so to distinguish between an advertisement that is an invitation to treat and one that is an offer to world is the intention of the person making the advertisement. Offers to the world at large are serious (distinguished from puffery), they ask you to do something (consideration), and usually limit what is received and by who. See Carlil for offers to the world, Leonard for puff and Shuey for revocation.

1.4 Offers vs Invitation to Treat An ‘invitation to treat’ is an initial approach to other to make an offer or enter into negotiations, it is not an offer because it lack sufficient indication of an intention to be bound. Typical categories of invitation to treat: •

Advertisements (Patridge)

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Goods on shelves (Pharmaceutical Society)

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Display of goods in shop windows (Fisher v Bell)

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Auctions (British Car Auctions v Wright)

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Calling for tenders (Spencer v Harding)

2. Response to the Offer A person who receives an offer may accept unequivocally on the terms proposed; reject it outright; make a counter offer; ask for more information or clarification; or do nothing at all

2.1 Counter Offers If the offeree responds with a new offer, or a variation of the terms of the original offer, it is a counter offer. The counter offer destroys the original offer and transfers the onus of acceptance between the parties. The counter offer is a new offer which can be accepted or rejected by the person who made the original offer. See Hyde v Wrench

2.1A Asking for More Information Asking for more information about an offer, or asking for clarification of the terms of an offer, is not a counter-offer and does not amount to acceptance or rejection of the offer. When the offeror answers the queries, the offeree can still decide whether to accept or reject the offer. Reasonable person test. See Stevenson, Jacques & Co v McLean

2.2 Termination of Offers An offer may be terminated any time prior to its acceptance. An offer can be terminated by: •

Revocation by the offeree

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Rejection of the offer by the offeror

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Lapse of time (Ballas v Theophilos)

o Offeror can fix a specified period within which the offer must be accepted, the offer will lapse if not accepted within this time o If no fixed period, it will lapse within ‘reasonable’ time. Case by case basis. o Manchester Diocesan Council of Education v Commercial and General Investments Ltd [1970] 1 WLR 241 considered two aspects to be important in considering the issue of time for acceptance of an offer §

The nature of the subject matter (whether it was of a wasting nature e.g. seafood/houses value fluctuates)

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Means used to communicate the offer (the more urgent means of communication = more reasonable to assume a quick response)

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Change of circumstances

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Failure of a condition (McCaul (Aust) Pty Ltd v Pitt Club Ltd [1959] SR (NSW) 122 o an offer can terminate if it is subject to a condition that is not satisfied. The agreement is not fully binding until the event occurs. o Known as a “condition precedent” o Versus condition subsequent – there is a binding contract until the event occurs

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Death of a party o Death of the offeror. §

If the offeree is aware of the offeror’s death they cannot accept the offer.

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If the offeree is not aware, a valid contract may arise. (Bradbury v Morgan (1862) 158 ER 877)

o Death of the offeree – the offer will probably lapse. Most time offers are personal to the offeree and not intended to be accepted by their estate. •

Supervening incapacity

2.2A Revocation Revocation occurs when the person making the offer withdraws the offer. The person making the offer must communicate to the offeree that they are withdrawing the offer. Until the offeree is aware of the revocation, the offer can still be accepted. •

Offers can be revoked before they are accepted (Payne v Cave 1789) 3 TR 148; 100 ER502)

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Must be revoked before it is accepted (Byrne v van T)

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Offeree must be aware that the offer has been withdrawn (Dickinson)

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Revocation to world at large (Shuey – this approach is likely to be followed in Aus)

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An offer made in exchange for the doing of an act becomes irrevocable once that act has partially been performed (Veivers v Cordingley [1989] 2 Qd R 278)

2.2AA Options Consideration needs to be given if you want to enforce someone to keep a promise to keep an offer open. Two contracts – the original one being offered, and the contract for keeping the offer open.

2.2B Rejection and/or Counter Offer Once an offer is rejected it cannot be accepted; a rejection terminates the offer; hence you cannot come back later and accept (Hyde v Wrench). A counter offer also terminates the previous offer.

3. Acceptance Acceptance is important because it defines when a contract is formed – can with draw up to that point. An acceptance is a final and unqualified assent to the terms of the offer, made in the manner specified or indicated by the offeror. It can be express or implied.

3.1 Acceptance must be in reliance of the offer

Main thing is meeting of the minds, you need to be aware of an offer to accept it. (Fitch is same as R v Clarke)

3.2 Conditional Acceptance Precedent: unless this thing occurs, the contract is not going to be enforceable. Subsequent: If this thing does not happen there is a breach of contract •

Parties intend to be bound immediately and the subsequent formal contract is just a formality Godecke v Kirwan [1973] HCA 38

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There is an intention to be bound immediately but performance will not commence until a formal contract is executed Niesmann v Collinridge [1921] HCA 19

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No intention to be bound before a formal agreement is entered into Masters v Cameron (1954 91 CLR 353)

3.3 Communicating Acceptance Acceptance must be actually communicated to the offeror by the offeree (Powell v Lee (1908) 99 LT 284).

3.3A Methods of Acceptance The offeror may stipulate the method of acceptance. Two rules: (George Hudson Holdings Ltd v French (1973) 128 CLR 387) •

If the offeror says there is only one way the offer must be accepted, the offer must be accepted in that way to be a valid acceptance.

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If the offeror stipulates a means of acceptance without saying it is the only way the offer can be accepted, the offeree can accept by a similar means, which is at least as fast as the stipulated method

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*see assignment 1 for accepting different method of acceptance

Communication may be by conduct (actions) – Brogden v Metropolitan Railway. There is a difference between waiving the right to be communicated acceptance and “if I don’t hear I assume” (silence cannot stipulate acceptance). Communication may be waived (Carlill) •

Offeror waives, offeree must decide to accept and do a positive act

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i.e. rewards – do not have to phone first, just bring dog back for reward

Instant communication

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general rule actual communication required (Entored Ltd v Miles Far East Corp)

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part 3 of the Electronic Transactions Act 2011 (WA) s 14 – times of receipt. Acceptance is communicated when it hits inbox (e.g. email), so you cannot withdraw your offer before checking your email if email is the stipulated method. If email is not the stipulated means you can withdraw the offer after it has hit the inbox if they are unaware of it doing so.

3.4 What is the postal rule and when does it apply? See assignment 1 •

Exception to ‘acceptance is not effective until communicated to the offeror’ is the ‘postal rule’.

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The postal rule applies only when the offeror must have contemplated and intended acceptance would be received by post (Henthorn v Fraser – see A1 for quote)

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Acceptance occurs as soon as the letter is properly posted and it is immaterial if the letter is lost or delayed in the post - Adams

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See Adams v Lindsell and also A1 for Household

3.5 Revocation of Acceptance An acceptance can be revoked provided the revocation is communicated to the offeror before he or she receives the acceptance Repudiation example: if someone posts acceptance, then rings up and says they revoke the acceptance, and then the offeror disposed of the subject matter, and then the offeree changes their mind and attempts to rely on the posted acceptance. •

Telephone revocation will be a repudiation of the contract formed when the acceptance was posted. By selling the item the offeror indicates they have accepted the repudiation which brings the contract to an end

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Be encouraging the belief in the offeror that the offer has been rejected, the offeree is ‘estopped’ from asserting that acceptance has occurred.

Repudiation: where on party shows an intention that they no longer intend to be bound by the contract

4. Intention To be bound the parties must have intended the agreement to be legally binding. Intention can be expressly stated, presumed or reasonably inferred.

Express statements of intention are often written in contract. It is possible to write that the parties are not legally bound to each other, however it is not possible to take away the courts power to intervene or interpret •

“this agreement does not give rise to any legal relationship… versus… no court shall have the power or jurisdiction to arbitrate in respect of any matter…”

Principle Freedom of Contract •

Parties are entitled to write/agree that they won’t be legally bound by an agreement i.e. memorandums

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See Rose & Frank Co v Crompton

Where the parties are silent on intention it the presumptions are followed however the presumptions may be rebutted. Onus of proof is on the person trying to rebut the presumption. Presumptions are a useful guide to assist with the onus of proof but the ultimate decision will be made on an assessment of the objective intention of the parties

4.1 Presumptions Social/domestic/family agreements are not binding (weak presumption and can be easily overturned). •

See Balfour, Merritt, Todd and Wakeling

Business/commercial agreements are binding (strong presumption and hard to overturn). Factors of rebuttal (social) •

Meeting of the minds: did the parties intend to be bound

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Seriousness of the effort involved/magnitude of the obligations (Todd)

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Value

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Closeness of the relationship

Factors of rebuttal (Commercial) •

See Carlill and Rose and Frank Co (mainly Rose – written agreement stating not intended to be bound)

Other arrangements •

Government – see Australian Woollen Mills

4.1A Effects of Ermogenous See Ermogenous case.

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Said it was difficult and wrong to slot every situation in to one of the two categories (domestic vs commercial). Instead important to take all the facts and circumstances into account

4.2 Objective Test Did the parties manifest an intention to create legal relations? What reasonable inference would a third party draw from the parties’ words, conduct and surrounding circumstances?

5. Consideration “A valuable consideration in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertake by the other” Currie v Misa (1875) LR 10 Exch 153, Lush J at 162”

5.1 Use of Consideration Can enforce a gratuitous promise (Parastatidis v Kotaridis) or an option if consideration is given. Not used in deeds (e.g. a Will)

5.2 Consideration Rules General Rules (categorised into three broad: movement; time; value) 1. Consideration moves from the promisee 2. Consideration need not flow to the promisor 3. Consideration may be a benefit to promisor or detriment to promisee 4. Consideration may be executed, executory but not past 5. Consideration need not be adequate but must be sufficient value (in the eyes of the law) 5.2A Movement •

Consideration must move from the promisee but need not flow to the promisor

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Consideration moves from the promisee. This means that a promisee who wants to enforce a promise made by the promisor must have given consideration (i.e. I will give you $5 to promise to hold the offer open for a week). o See Australian W… there was no consideration, it was a gift to the farmers who had given nothing.

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Consideration need not flow to the promisor because the promisor may direct that the consideration be given to some third party Bolton v Madden

5.2B Timing Consideration may be executed, executory but not past. Cannot make past actions the subject of a contract (Anderson v Glass & Roscarlo v Thomas) Contrast this with Lampleigh v Braithwait. If there is a question re a past action, ask: is this a situation where a reasonable person would think that reimbursement would be in order, then either apply or distinguish from L v B.

5.2C Value Consideration need not be adequate but must be sufficient. It does not need to match in value but must be of some value in the eyes of the law. Can be monetary; intrinsic; sentimental; etc. Value is something ‘fresh’ (new); something you do not already have or not already entitled to; can be a benefit or a detriment or forbearance; cannot be a pre-existing debt, duty or obligation. See Chappel & Co v Nestle.

5.3 Forbearances Forbearance to sue can be consideration. In order for forbearance to sue to be good consideration, the promisee must prove that: 1. The claim on which the action is based is not frivolous 2. A genuine belief that there is a good chance of success 3. The promisee has not concealed from the defendant any act that could affect the validity of the claim Authority is Callisher v Biscoffheim

5.4 Acts or Forbearances in Discharge of an Existing Duty Acts or forbearances in performance of an existing public duty does not constitute good consideration See Glasbrook Bros Acts or forbearances in performance of an existing duty to the promisor •

Main question to ask: are they performing a pre-existing duty or are they doing something more

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See Stilk v Myrick o Rule: ‘existing duty’ principle o The rule in Stilk does not apply in the following situations: §

Where an existing agreement is terminated by the parties and a new agreement is made

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Where an additional payment is promised in compromise of a bona fide dispute (bona fide = authentic)

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Where additional risks are undertaken or where the promisee provides some additional act or forbearance. This third exception seems to have been extended in Williams v Roffey Bros & Nicholls. also see Musemeci v Winadell

Acts or forbearances in discharge of an existing duty. E.g. discharging a debt for less than full payment. •

E.g. A lends B $100. B comes to A with $80 and asks to call it quits. A can agree but then later chase the remaining $20 as it was their pre-existing duty to pay the full amount. Would not be able to chase the other $20 if consideration was given for a promise not to chase the $20.

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When a debt can be settled by a lesser amount o Debt is paid by a third party (Hirachand Punamchand v Temple) o Paid in a different manner (DC Builders v Rees) o Paid early o If there is an arrangement whereby each creditor of a particular debtor agrees to accept a lesser sum in satisfaction of the whole debt they are owed

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If a debt is paid by a third party, is paid early or is paid in a different manner (, e.g. a gift, it can be settled by a lesser amount.

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Rule in Pinell’s case: if you pay less in satisfaction of a debt, that is not consideration for forgiving the rest of the debt.

Also: consideration must be distinguished from motive, and consideration cannot be illusory or vague (white v bluett)

6. Capacity

Voidable contracts – a contract which may appear to be valid and has all of the necessary elements to be enforceable, but has some type of flaw which could cause one or both parties to void the contract. An unenforceable contract is a contract which cannot be enforced in a court of law. This could happen because the terms of the contract are ambiguous, if one party has a voidable contract or if the Statute of Limitations has expired. 6.1 Minors •

18 years old – section 5 of the Age of Majority Act 1972 (WA)

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16 year olds can enter into life assurance contracts – s 199(2) of the Life Insurance Act 1995 (Cth)

Two types of contracts that minors are legally bound by: contracts for the supply of ‘necessaries’ and beneficial contracts of service – these are valid contracts. Otherwise contracts entered into by minors are voidable contracts. There are two types: •

Contracts that are binding on the minor unless repudiated by them while still a minor or within a reasonable time after 18 years o “…contracts whereby a minor aquires property of a permanent nature to which continuing obligations are attached.” o E.g. lease of land, purchase of shares, partnership contracts

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Contracts that are not binding upon a minor unless ratified by them within a reasonable time after attaining adulthood o Ratification can be express or implied, can be in writing or by conduct e.g. carrying out a performance

6.1A Contracts for the supply of necessaries •

S 2 of the Sale of Goods Act 1895 (WA) defines necessaries as “’Necessaries’ in this section means goods suitable to the condition in life of such infant or minor or other person, and to his actual requirements at the time of sale and delivery.”

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Chapple v Cooper (1844) 153 ER 105, Alderson B at 107: “Things necessary are those without which an individual cannot reasonably exist. In the first place, food, raiment, lodging and the like … Again, as the proper cultivation of the mind is as expedient as the support of the body, instruction in art or trade, or intellectual, moral and religious infor...