Contract Study Notes - Covers week 1-13 content and brief summaries of all course cases PDF

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Covers week 1-13 content and brief summaries of all course cases...

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LLB1120/LLB 120 LAW OF CONTRACT A

CHRISTY KOUFOS - STUDY NOTES -

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CONTENTS: REQUIREMENTS FOR A VALID CONTRACT ……………….. 3 - 4 TERMINATION OF AN OFFER …………………………………. 5 - 8 ACCEPTANCE ……………………………………………………. 9 - 12 CONSIDERATION ………………………………………………… 13 -19 INTENTION ……………………………………………………….... 20 - 24 CAPACITY …………………………………………………………. 24 - 25 CERTAINTY AND COMPLETENESS …………………………… 25 - 27 FORMALITIES ……………………………………………………… 28 - 30 ALTERNATIVE SOURCES FOR RELIEF - ESTOPPEL …………………………………………………… 30 - 33 - RESTITUTION ………………………………………………… 34 - 36 THE DOCTRINE OF PRIVITY ……………………………………... 36 - 40

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REQUIREMENTS FOR A VALID SIMPLE CONTRACT: -

Agreement (Offer & Acceptance) Consideration Intention to create legal relations Sufficiently certain and complete

AGREEMENT: -

Agreement is an understanding, or meeting of the minds, reached between two or more parties about a particular subject.

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Agreement must be voluntary - Must not be the result of illegitimate pressure e.g. at gunpoint. - Commercial pressure does not render contract involuntary eg:desperation.

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For an agreement to occur there needs to be an offer and acceptance that is communicated (via words or conduct) in a reasonable and agreed upon way.

OFFER: ‘ A clear indication by one person to another of a willingness to enter into a contract on certain terms’. An offer must: 1) Be clear from words &/or conduct of the promisor that the promisor is willing to be bound to his/her promise without further negotiation and that a binding agreement would be made upon acceptance. Gibson v Manchester City Council [1979] Terms of certainty, definitive language and a distinctive promise = essential to having a valid offer (ie may be prepared to sell = Insufficient). Carlill v Carbolic Smoke Ball Co [1983] Sincerity (ie deposit ‘£100) = Demonstration of willingness : NOT a ‘mere puff’ → exaggerated statement that no reasonable person would believe to be true.  ot too vague ‘£100 w  ill be paid’ The language was n Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] If further discussion (ie payment) is required before an agreement is reached it can be concluded the communication is an invitation to treat not an offer.

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2) Propose an exchange of a commitment to the promise in return for a specified ‘price’ from the promisee that may be a completed act by the promisee or a return promise from the promisee to do or not do something.Must not be: A mere statement of policy, a mere conditional gift Carlill v Carbolic Smoke Ball Co [1983] Clear promise of £100 through performance of conditions. Australian Woollen Mills Pty Ltd v Commonwealth There was no promise offered in consideration of doing an act therefore no relationship of quid pro quo. Was merely a condition to the entitlement of subsidy. These 2 aspects of offer are determined objectively ie: How a reasonable (or ordinary) person, in the position of the person to whom the communication is made (i.e. the offeree), would construe it (Carlill). Rules concerning an offer: 1. Acceptance must occur in response to the offer: - Person accepting (offeree) must act pursuant to the offer met. - There must be consensus ad idem → not possible if the offeree acted for some other reason other than to comply with the offer. R v Clarke (1927) 2. Who can accept the offer - If an offer is directed to a particular individual or to the members of a particular group, the offer can only be accepted by that individual or group. - World at Large: when an offer is made to the whole world it can be accepted by anyone who performs the requirements of that offer: Carlill (1892) 3. There must be correspondence between offer and acceptance - For valid acceptance, acceptance must correspond with the terms of the offer - If offeree goes to accept an offer but does so in terms that are different with what is contained in the offer, there is no consensus ad idem and therefore there cannot be an agreement:Butler Machine Tool v ExCellOCorp (England) [1979] 4. Acceptance must be communicated - Agreement is not reached unless the offeror is notified of acceptance.

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The agreement is concluded at the time the acceptance is received by the offeror rather than the time it is sent by the offeree. Silence does not = acceptance : Felthouse v Bindley

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TERMINATION OF AN OFFER: -

Once terminated an offer cannot be accepted, incapable of acceptance. An offer does not remain open forever to be accepted.

Generally speaking the following events will terminate an offer: 1. Revocation of the offer by the offeror; 2. Rejection of the offer, or counter offer, by the offeree; 3. Failure of the offeree to accept in time/lapsed; 4. Death of the offeror or offeree; 5. Failure of a condition -

After one of of these events, the offeree cannot, thereafter, accept the offer and conclude agreement.

1. Revocation: An offer will cease to be effective where it has been revoked ie (withdrawn) - An offer can be withdrawn at anytime prior to acceptance any words or conduct which make clear the intention to revoke are sufficient. RULES FOR REVOCATION: 1. No precise language is needed so long as from the language used, a reasonable person can decipher whether or not an offer is being withdrawn 2. In certain circumstances communication of the revocation by a third party will be sufficient: The communication may occur directly or via third parties.

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3. Promise to keep the offer open for a certain period of time will not affect this rule unless the person to whom the promise is made gi

ves something of value (consideration) in return. 4. The postal acceptance rule does not apply to revocation of offer 5. Revocation will only become effective if it is actually communicated to the offeree. It doesn’t matter how it reaches the offeree but it must actually reach the offeree + Dickinson v Dodds

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6. In unilateral contract, an offer may NOT be revoked if an offeree has begun to perform the necessary conditions to enable acceptance of the contract to be complete. Some conditions apply:

7. Termination of an offer will occur on the basis of a condition not being met

8. A mere inquiry does not revoke an offer - a counter offer revokes an original offer

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9. An offer will cease to be effective where it has lapsed, if an offer is stated to be open for a specified period it will lapse on expiry of time period. If no time period is specified, the offer will lapse after a ‘reasonable time’

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ACCEPTANCE: 2 approaches to determining if the parties have reached “agreement” - Conventional: Offer + Acceptance = Is there an offer? (definite promise, proposal for exchange etc), Is the offer still open to accepted? (revoked, rejected, lapsed) Has the offer been accepted? - Alternative: Objective + Subjective = Meeting of minds or External manifestation Time contract is made = time when offeror receives communication of acceptance Place contract made = place where offeror receives communication of acceptance = Brinkibon v Stahag Stahl Governing principles of Acceptance: 1. Nexus = Acceptance must be of and in response to the offer 10

a) The offeree must be aware of the offer + b) Offeree must perform the act in response to the offer

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Rarely arises in Bilateral contracts where parties exchange promises, one for the other ie: car for money. Common in Unilateral contracts - was the act really done by the offeree as an acceptance of the offer

2. Communication = Acceptance must be communicated to the offeror The requirements for Communication: - Acceptance is generally only effective when it has been communicated to the offeror. HOWEVER, consider notion - “external manifestation of assent to an offer”

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Silence does not constitute acceptance:

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However, inactivity with benefit = acceptance

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Acceptance can be implied

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Exceptions to the general rule of communication: a) Waiver - Open to offeror to waive the need for communicated acceptance. Carlill v Carbolic + Felthouse v Bindley b) Prescribed mode of acceptance - Acceptance may need to be communicated via a specific form.

c) Postal acceptance rule - Acceptance is deemed to be effective at the time and place the letter of acceptance is posted.

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3. Correspondence = Acceptance must correspond with the offer Acceptance must amount to an unequivocal statement, or form of conduct by the offeree, indicating assent to the offer - Brambles v Bathurst (see above) +

‘Where there is no identifiable offer and acceptance, the question “is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain” ‘ Meates v Attorney General [1983] NZLR 308, 377

CONSIDERATION -

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To find out if a promise is enforceable, one must look to see what the other party - the person to whom the promise was given - has done in return for it. Two elements: 1. An exchange - promisee gives ‘something’ in return for the promisor’s promise. Need for: (a) A quid pro quo (‘this for that’, something in exchange for its promise) relationship between the offer and consideration; ‘

i) In a Bilateral contract the promisee provides a ‘return promise’ as consideration for the promisor’s promise. Ie: Promise to deliver something if you promise to pay ii) In a Unilateral contract a promise in exchange for an act - the promisee’s performance of the requested act is the consideration for the promisor’s promise.

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+ Australian Woollen Mills v Cth = There was no consideration; buying wool was merely a condition precedent to the entitlement of a subsidy + Carlill v Carbolic = inconvenience suffered by Mrs Carlill in using the smokeball as directed was sufficient consideration & Carbolic received a benefit in having people use the smoke ball. (b) The promisee must provide the consideration - consideration must ‘move from the promisee’

2. That ‘something’ given by the promisee must be regarded as ‘good in law’ or ‘sufficient’ or ‘something of value in the eye of the law’. -

An act of the promisee from which the promisor derives a benefit  or advantage

OR -

Any forbearance, labour, detriment or inconvenience suffered by the promisee at the request of the promisor at the price of the promise + Carlill v Carbolic Consideration must be sufficient or good in law BUT: -

It need not be adequate:

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Consideration will NOT be sufficient where It is : illusory: - Where the promisor retains an absolute discretion to perform its promise. Ie never has to actually perform its promise.

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Where the promise made is too vague and uncertain

Past: - Past consideration is no consideration

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HOWEVER, Past consideration may be good consideration when ‘executed’

Merely an existing duty: Neither the promise to perform, nor the actual performance of an existing legal duty constitutes consideration. Eg owed under the terms of an existing contract. -

Where existing duty is a public duty owed under the general law

Dunton v Dunton ( see 2 pg above) -

Where existing duty is a private duty eg: is owed under the terms of an existing contract between same parties

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A promise to pay a lesser sum cannot be consideration for the greater (part payment of a debt)

Rule applied:

HOWEVER, consideration will be sufficient regardless of if an existing duty where: a) Fresh consideration is provided: By exceeding the duty or providing nominal additional consideration eg: discharge $500 debt for $50 + a car 19

b) The promise to  perform  or  the performance  of the existing duty will amount to consideration if it confers a practical benefit on the promisor.

Williams v Roffey is only applicable in Australia with the following extra rules:

c) A promise to perform an existing duty that is owed to a third party is good consideration for a promise. SEE Pao on v Lau Yiu Long.

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d) A promise to perform an existing duty will be good consideration if the promise is made as part of a bona fide (genuine) compromise of a disputed contractual claim.

c) The original agreement has been terminated by the parties and replaced with a new contract

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INTENTION TO CREATE LEGAL RELATIONS: Intention = Requirement for a valid contract. -

Not enough t o show the parties have reached agreement and have provided consideration

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Parties must also intend their agreement to be legally binding ie: intent that their agreement should have legal consequences.

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This intention is determined objectively - whether the parties have manifested an intention to create legal relations. (Ermogenous)

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NOT common issue in commercial transactions

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IS common in family/social/domestic non-commercial contexts.

How intention can be proven: ‘OLD’ approach= ‘pre emogenous’ : presumptions were used to determine who bears the onus of proof in establishing intention to create legal relations. -

Commercial = presume intention → party asserting no intention has onus to prove Non-commercial = presume NO intention → party asserting contract does exist = onus to prove there is intent

‘NEW’ approach = requiring the party who was asserting a binding contract existed to prove all elements of formation of the contract, including the intention to create legal relations.

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Effect of this is to render all non-commercial contracts neutral in terms of presumption. Religious cases = definite no presumption of non intent. -

If contract is commercial the context will usually indicate that the parties intended to create legal relations → the onus is upon the party denying intention to show no intention manifested.

Suggesting no intention to create legal relations in commercial transactions is an ‘argument of last resort’ - But has been raised in cases concerning: a) Advertisements eg: Carlil v carbolic - Carbolic argued offer intended to be a promise only b) Promise of free gifts eg: Esso Petroleum v Commissioners and Excise ‘one free coin with every 4 gallons of petrol’ c) Letters of comfort

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Non - Commercial arrangements: -

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Onus on party asserting contract - Emorgenous Objective tests: Factors relevant to establishing intention was manifested =

Differs from Padavatton because there is a definite time frame of keeping offer open and and the change of will demonstrates intent via a legal document.

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Agreements to which the government is a party Whether intention to create legal relations is manifested may depend on whether the transaction is: i) a ‘normal’  commercial agreement - contract to buy goods/ services; OR  ii) A consensual arrangement entered into as a part of the implementation of a government policy or programme. Eg: Australian woollen Mills v Cth p 14

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Preliminary agreements - Agreements expressed as ‘subject to contract’

CAPACITY Those who don't have the capacity to fully understand the nature and extent of an agreement are usually protected by the court refusing to allow parties to enforce certain types of contracts against them. The main protected classes include: 1) Minors < 18y = protected by: - Statutory schemes Minors (property and contracts) Act 1970 (NSW) Where a minor participates in a ‘civil act’, the civil act is not binding on minor except as provided by the Act (s17) A minor is presumptively bound by a civil act that is for the minor’s benefit (s 19) provided the minor does not lack, by reason of youth, understanding necessary to participate in a civil act (s18) A ‘civil act’ is defined to include a contract (s 6(1)) Thus a contract, entered into by a minor that is for the minor’s benefit, is presumptively binding as if the minor is not disabled by infancy – and cannot be repudiated by the minor (s 31) Common law protection: At common law, some contracts with minors will have legal binding effect.1- Contracts for necessaries 2- Contracts binding unless repudiated by minor during minority or reasonable time thereafter 3- Contracts not binding unless ratified. 2) Mentally incapacitated persons 3) Intoxicated persons 26

Both contracts are void if person who suffers can show: - He or she was incapable of understanding the contract at the time it was made; and - The other party knew or should have known of incapacity Gibbons v Wright - However, if the contract is for 'necessaries' the incapacitated party is still obliged to pay a reasonable price for such goods or services. S  ale of Goods Act 1923 (NSW) s 7(1)

SUFFICIENTLY CERTAIN AND COMPLETE: A contract may fail where it is: a) ‘Incomplete’ → parties have not agreed on an essential part of transaction or left until later to reach agreement. b) ‘Uncertain’ → where the language used to define obligations is too. imprecise/vague the court can not attribute meaning to what was promised c) ‘Illusory’ → where one party retains an unfettered freedom to perform the promise given. SUMMARY OF APPROACH: 1. Identify alleged uncertainty, incompleteness or illusory promise. 2. Determine whether uncertainty/incomplete/illusory can be cured by reference to principles established in the cases: 3. If it cant be cured, determine - Whether the term is so vital that it renders the whole contract void - Whether the problem term can be severed leavning the remaining enforeable - Whether the ‘problem’ was intentionally inserted so compliance would be waived Courts endeavor to uphold contracts : To preserve the validity of the contract → Meehan v Jones (1982) (a) Completeness: - ‘No contract is concluded until the parties negotiating are agreed on all the terms of their bargain’ Milne v A-G tas (1956) An agreement will not be incomplete simply because parties defer agreement on an essential term if they have provided an effective mechanism in their contract (a ‘machinery provision’) for supplying that term if they fail to reach agreement.

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(b) Certainty: Language must not be so vague  ambiguous or imprecise that the parties’ intended obligations cannot be ascertained and enforced.

‘..a contract of which there can be more than one possible meaning…is not therefore void for uncertainty. As long as it is capable of a meaning, it will bear that meaning which the courts…decides is its proper construction…’ - Council of Upper Hunter…v Australian Chilling.. (1968)

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Uncertainty- relation to conditions not being fulfilled

c) NOT illusory 'wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a complete discretion or option as to whether he will carry out that which purports to be a promise, the result is that there is no contract (Kitto J) → Placer…

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FORMALITIES -

At common law there is no requirement for contracts to be in any particular form to be enforceable. Contracts are enforceable whether they are full written, oral or partly written and partly oral.

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Formalities (such as writing) WILL be required where legislation mandates it eg ACL, building etc

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