Contracts - Exam notes PDF

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Formation of Contract: Offer Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 – Offer  Gibson v Manchester City Council [1979] 1 WLR 294 - Invitation to treat  MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 - Ticket as offer, not concluded contract ...

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Formation of Contract: Offer      

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 – Offer Gibson v Manchester City Council [1979] 1 WLR 294 - Invitation to treat MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 - Ticket as offer, not concluded contract Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 - Invitation to treat, not offer Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674 – Option Mobil Oil Australia Ltd v Wellcome International (1998) 81 FCR 475 - Revocation

OFFER An offer is a statement by an offeror with an intention to be bound by specified terms. An offer is only effective once it is communicated to the offeree. A proposal only amounts to an offer if the person making it indicates that an acceptance is invited and will conclude the agreement between the parties. Contracts may take the form of: 1. A unilateral contract (1 executed and 1 executory promise) a. An offer is made to everyone and is accepted and performed simultaneously. • In Carlill, the offer was accepted and consideration conveyed through the execution of the act in return for the promise. 2. A bilateral contract (2 executory promises) a. Formed when there is an exchange of promises. Objective Assessment Carlill per Bowen LJ: Would it appear to a reasonable person in the position of the offeree that an offer was intended, and that a binding agreement would be made upon acceptance AMW : Whether particular conduct amounts to an offer is a question to be decided on the facts of each case Gibson per Lord Diplock: An offer is not valid if the language of the offer is vague and/or not specific in communicating the intent to enter an agreement Identifying an Offer An offer should be distinguished from the following 1. Invitations to treat or negotiate- Pharmaceutical Society of Great Britain 2. Puffery - Carlill 3. Supply of information- Stephenson, Jacques & Co v McLean (1880) 4. Counter-offers- Butler Machine Tool Co Ltd v Ex-Cell-o Corp [1979].

Invitation to Treat

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Shop sales: In Pharmaceutical Society of Great Britain v Boots Cash and Chemists, the court ruled products on display or on a shelf in a shop are an invitation to treat, and not an offer. An offer is made by the customer, once they have selected the goods and have taken them to the sales counter. Up to this point customers are allowed to return goods to the shelves, so a contract cannot be made. The offer is accepted and a contract is made when the shop takes payment, and not before. Auctions: An auctioneer does not make an offer to sell, but merely invites offers from those present at the auction. Each bid constitutes an offer, the fall of the hammer constitutes acceptance. Tenders: A call for written tenders will usually constitute an invitation to treat, each tender constitutes an offer. Puffery: Carlill A statement, which is so far-fetched that no reasonable person would believe it, A puff may be used to induce a contract but are not binding upon the party making them: Court ruled that an offer is not mere puffery if the language was not so vague that you could not construe it as a promise. There was clear intention in the advertisement by reference to the language used, and the money deposited. A statement made with sincerity conveys an offer. An offer to the world at large is capable of being an offer, provided that is what the offeror intended (e.g rewards for information about locating something or claims regarding the trustworthiness of a product) Counter-offers A modification of an offer which implicitly rejects an original offer and makes it no longer available for acceptance. The traditional method for the battle of forms mentioned in Butler Machine Tool Co Ltd v Ex-Cell-O Corp is followed in Australia. Recipients of Offers An offer will only be effective when it (all of its terms) is communicated to the offeree. An offer cannot be accepted unless the acceptor is aware of the existence of the offer and its terms Carlill v Carbolic Smoke Ball Co [1893], MacRobertson Miller Airline Services v Cmr State Taxation (WA) (1975). Ticket Cases If one is handed a ticket or another document with terms, and they retain the ticket or document, then they are bound by those terms. In MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) [1975], the court in varying judgements said that a contract was not made when a ticket was issued, rather it is a receipt and the offer is made by the customer in taking a seat and the acceptance results through the execution of the service. Barwick CJ that it is similar to unilateral contract, the customer taking the seat is an offer and the airline, in accepting the offer through execution of service, was allowed to keep the money paid for the ticket as a reward, else they return the money. Stephen J (dissenting) said that the ticket recorded the terms of an offer and a customer then had the chance to accept or reject those terms, and by taking a seat, agreed to the terms and a contract was formed. Termination of an Offer

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Revocation An offer may be revoked anytime before acceptance, and is only effective once it is communicated to the offeree (including all potential offerees). An offer must be withdrawn in the same mode as it was made, Carlil v Carbolic Smoke Co In a Unilateral Contract, as per Mobil Oil Australia Ltd v Wellcome International (1998), an offer that is made to the world cannot be revoked while an offeree is in the act of executing consideration to accept the offer. Rejection An offer may be rejected either expressly or inferred through an offerees actions, including making a counter offer as per Stevenson Jaques and Co v Mclean (1880). Once an offer has been rejected, it is no longer available for acceptance. Lapse of Time An offer expressed to be available for acceptance for a particular period of time, will lapse at the end of that period: Goldsbrough Mort. If no period is stipulated, the offer will lapse after a reasonable period of time: Option An offeror will not be bound by a mere promise to keep an offer open unless as in Goldsbrough Mort and co Ltd v Quinn [1910] separate consideration is paid. Griffith CJ and Isaacs J both said that a promise to keep an offer open if supported by some consideration means that there can be no withdrawal of an offer within that period of time. There is a valid separate contract for valuable consideration. An offer, after a reasonable period of time without acceptance will lapse. Non-occurrence of a Condition Where an offer is subject to a condition, such as finance or other approval, the failure of that condition causes the offer to lapse, Meehan v Jones (1982). Death Where an offeror dies, the offeree may accept the offer at any time before the death notice.

Cases

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Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Facts

Carbolic Smoke Ball Company placed an ad in the newspaper that stated a 100 pound reward would be paid to any person who contracts the flu after “using the ball three times daily for two weeks to the printed directions supplied on the ball”. Stated 1,000 pounds had been deposited into Alliance Bank to show sincerity. Plaintiff purchased a smoke ball, used it according to instruction and contracted influenza.

Court & Judges

Court of Appeal - Lindley LJ, Bowen LJ & Smith LJ. Appeal from Hawkins J

Issues

Can an advertisement made to the whole world be an offer? Offer or ‘mere puff’/ invitation to treat?

Reasoning The court makes it clear that an advertisement is not an explicit offer. Except, the court says an advertisement may be an offer in some limited circumstances including when a reward is offered or there is a “genuine” and “sincere” promise. The sincerity of the promise of the reward makes it more than just a “mere puff”. The deposit in the bank showed sincerity and thus, more than a mere puff. Although as a general rule communication of acceptance is required, the offeror may dispense with the need for notification and had done so in this case. Here, it was implicit that the offeree (Mrs Carlill) did not need to communicate an intention to accept; rather acceptance occurred through performance of the requested acts (using the smoke ball) Ratio

Lindley LJ Advertisements offering rewards are offers to anybody who performs the conditions named in the advertisement & anybody who does perform the condition accepts the offer. Therefore, forming a unilateral contract (exchange for an action) → Williams V Carwardine 1833. The person who makes the offer gets the notice of acceptance contemporaneously with the offeree's notice of performance of the condition. → Brogden v Metropolitan 1877 Consideration is satisfied if the offeror derives an advantage or if the offeree sustains any labour, detriment or inconvenience → Lathrop V Bryant (1836) Bowen LJ: The Objective ‘Reasonable person’ test can be used to determine the period of time the offer is available for if no fixed is time specified. Whether it would appear to the reasonable person that an offer was made Smith delivered a similar judgement

Decision

4

The Court of Appeal found for the claimant, determining that the advert amounted to the offer for a unilateral contract by the defendants.

Gibson v Manchester City Council [1979] 1 WLR 294 Facts

The local Council sent a letter inviting a formal application by council tenants to buy their house. The plaintiff, a council tenant, received a letter and completed and returned the application attached to it. However there was then a change of Government, and the incoming Labour Government dropped the privatisation of housing policy. The Council refused to accept the plaintiff's application. The plaintiff sued for breach of contract even though there had not been a formal exchange of documents (contracts) in accordance with the ordinary practice. Mr Gibson relied on a letter as an unconditional acceptance of the corporation’s offer to sell the house. Clause in the letter stated that “we MAY be prepared to sell” and “this letter should not be regarded as a firm offer of a mortgage

Court & Judges Issues

Reasoning

House of Lords - Appeal from the Court of Appeal Lord Denning, Lord Diplock, Lord Fraser of Tullybelton, Lord Russell of Killowen and Lord Keith of Kinkel Was the defendant’s letter properly construed as an offer or as an invitation to treat? “Whether in the correspondence between the parties, there can be found a legally enforceable contract” (Lord Diplock at 295) It was affirmed that the conventional approach of deciding whether there is agreement is by discerning if there is an offer from one of the parties and an acceptance of the offer by the other party. A clear offer and unequivocal acceptance indicates the moment the contract comes into being. It denounced the wholistic approach to deciding agreement. The language used is important in determining objectively if an offer has been made. ‘May be prepared to sell’, to make formal application to buy’ - certainty of language is important.

Ratio

Lord Diplock An offer is the parties’ intent to be bound to the agreement, a definite commitment to be bound on the terms stated. An offer must not be vague or informal otherwise it will be considered an invitation to treat. Lord Denning (Dissenting) You should look at the correspondence as a whole. If by that correspondence and conduct you can see an agreement on all material terms, then there is a binding contract, even though all the formalities have not been gone through.

Decision

The House of Lords held that there was no concluded contract and the defendant was not legally bound to sell the property, as the council’s letter did not state the price and was not an offer but an invitation to treat.

MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR

5

125 Facts

Establishes whether purchasing a ticket online is considered an offer or not for taxation purposes. Plaintiff’s practice was to quote the fare and availability of seats, then issue a ticket in exchange for payment. Ticket contained a condition which allowed Plaintiff to cancel flights without incurring liability. The clause that allowed Plaintiff to cancel flights without liability entails that the promise to carry the passenger is illusory.

Court & Judges

High Court of Aust Barwick CJ, Stephen J & Jacobs J

Issues

Ratio

Does purchasing a ticket online satisfy consideration? Is a prepaid ticket an agreement (contract) or a 'memorandum of agreement' of a contract for the purposes of stamp duty? Barwick CJ: An airline ticket is a unilateral contract. The passenger makes the offer when the ticked is purchase. The offer is accepted by the Plaintiff’s conduct which is carrying the passenger on the plane. An airline ticket is like a voucher which might be honoured on presentation Stephen J The ticket is the offer. The passenger indicates their acceptance by boarding the vehicle, or by failing to reject the offer after the passing of a reasonable time, the passenger having had an opportunity to learn of the conditions. Thus the acceptance may occur without communication, but this is readily inferred in view of the offeree having part performed the contract by paying the fare. An offer is only effective if it identifies a valid consideration and manifests an intention to create a legal obligation (Paying for the ticket is not yet acceptance, because conditions haven’t been read yet) Jacobs J considered that the carriers offer is accepted by the passenger accepting the ticket and paying the price, forming an executory contract between the carrier and the purchaser. The ticket also constitutes an offer of carriage to the proposed passenger (who may differ from the purchaser of the ticket) capable of acceptance by presentation of the ticket

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401

6

Facts

The defendant ran a self-service shop in which non-prescription drugs and medicines were sold. These items were displayed in open shelves from which they could be selected by the customer, placed in a shopping basket, and taken to the till where they would be paid for. The till was operated by a registered pharmacist. However, the claimant brought proceedings against the defendant for breach of section 18(1) of the Pharmacy and Poisons Act 1933, which requires the supervision of a registered pharmacist for the sale of any item in the Poisons List. Plaintiff claimed that the display of items for sale should be viewed as an offer, which is then accepted when the Offeree takes them off the shelf

Court & Judges

Court of Appeal of England and Wales - Criminal Case Somervell, Birkett & Romer LJJ

Issues

Ratio

Decision

Are Items displayed for sale in shops an invitation to treat or offer? At what stage of a purchase in a self-serve store is there an acceptance of offer? acceptance is when one pays money to the cashier Invitations to treat or to negotiate Somervell LJ Items displayed for sale in shops are regarded as invitations to treat, not offers. Since customers are allowed to return items to the shelf, the mere display cannot constitute an offer. Rather, an offer is made when the customer presents the item to the cashier, an offer which is then accepted when the cashier takes payment. Appeal Dismissed

Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674

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Facts

The defendant, for valuable consideration, gave the plaintiffs an option for a week to purchase the defendant’s conditionally purchased and conditionally leased lands. Before acceptance the defendant repudiated the offer. The plaintiffs, notwithstanding the alleged repudiation, accepted the offer within the week, and brought a suit for specific performance of the agreement.

Court & Judges

High Court of Aust Griffith CJ, O'Connor J & Isaacs J

Issues

Ratio

Can a person revoke an offer before the other party accepts the offer if the agreement states that the offer will not be withdrawn for one week? - an option. Termination of offer- an irrevocable offer Griffith CJ A mere promise to leave an offer open for a period of time is not enforceable, the promise without consideration is nudum pactum. But if there is consideration for the promise, it becomes binding. It is often said that "an option given for value is not revocable". The true principle is that an option is an offer to sell upon condition, a conditional contract, which is enforceable by specific performance once the condition is satisfied. If a promise only stated that the offer would not be withdrawn, an irrevocable offer, then a breach could be compensated for in damages. O'Connor J The undertaking may be viewed as an agreement to sell subject to a condition subsequent - the acceptance by the other in the time provided for. Withdrawal of the undertaking is a breach , the remedy for which is damages or specific performance. Alternatively it may be viewed as an option for value, in which case the correct approach is to ignore a purported withdrawal before acceptance and treat it as still open for acceptance. From either view, there is nothing to prevent the party from obtaining specific performance of the sale. Isaacs J Reasoned that the option was a preliminary contract to hold open an offer to sell the property. The exercise of the option gave rise to a separate contract of sale. He believed damages should be awarded because spec

Decision

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An offer cannot be revoked if the offeree has provided consideration for an option. The offeree is entitled to the full amount of time given to them to decide whether to accept the offer. Appeal allowed - Mort won and was given specific performance.

Mobil Oil Australia Ltd v Wellcome International (1998) 81 FCR 475) Facts

Mobil represented to dealers that any dealer who performed at a set level for six years would be given a franchise for a further nine years at no cost. Mobile subsequently discontinued the scheme and a number of dealers alleged (amongst other things) breach of contract.

Procedural History

The trial judge, Wilcox J, held that once an offer was made, requiring performance as the act of acceptance, the offeror could not revoke the offer once the offeree has embarked upon acceptance. Full Court disagreed.

Court & Judges

Federal Court of Australia LOCKHART, LINDGREN, TAMBERLIN JJ

Issues

Ratio

Decision

Termination of offer: Revocation of unilateral contracts Was there an offer? Can a unilateral contract be revoked after performance has been partly performed? An offer made in return for performance of an act (unilateral) is, like any other offer, revocable at any time. The offeror will only be prevented from revoking the offer where there is an implied term not to revoke or an estoppel, where the offeree is induced to adopt the assumption that the offer will not be revoked which causes them detriment. A vague and uncertain statement cannot suffice to an offer nor create a contractual obligation. If the offer is made to the whole world, then the offeror must use appropriate means to communicate the revocation of the offer to all potential offerees Mobil had not made an offer to the franchisees; the scheme was only at the developmental stage & what Mobil had said was not in the nature of an offer. If an offer had been made, a unilateral contract is revocable at any time provided there is no implied ancillary contract not to revoke, and no estoppel preventing revocation. Their Honours therefore, did not accept a universal proposition that revocation is not per...