Contracts LLB 202 Notes PDF

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CONTRACTS LLB 202 NOTES

FORMATION Is there a valid contract?

CONTRACT FORMATION 1. AGREEMENT (offer and acceptance) 2. INTENTION TO CREATE LEGAL RELATIONS 3. CONSIDERATION

1.0 Agreement The fundamental requirement for any contract is that the parties have reached agreement. An agreement is reached where an offer is made, and the offeree accepts that offer. A valid agreement based on an offer and acceptance can exist between two or more parties Clarke v Dunraven

1.2 OFFER: Definition: An offer is the expression to another of a willingness to be legally bound by the stated terms Australian Woollen Mills Pty Ltd v Commonwealth (1955). 1.2 1Offers in bilateral contracts Most contracts entered into are bilateral contracts. The definition of a bilateral contract was provided by Lord Diplock in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd ‘under contracts of the former kind (bilateral), each party undertakes to the other party to do or refrain from doing something, and in the event of his failure to perform his undertaking the law provides the other party with a remedy’. An offer in the bilateral context is (if accepted) effective to bind both parties to perform his or her undertakings. 1.2.2 Offers in Unilateral contracts Unilateral contracts are less frequent. A unilateral contract is different from a bilateral contract in that it does not immediately impose an obligation on a party. The obligation on the offeror to perform, only arises if the offeree performs the required task. The offeree will never be under an enforceable obligation to perform. Some examples of unilateral contracts include: Offers for reward: government may reward an offer of an amount of money in exchange for information leading to the conviction of a murderer

Offers for prizes: A manufacturer of a product may advertise a prize for customers who buy over a certain amount.

1.2.3 Offers to the public at large Offers can be made to the world at large Carlill v Carbolic Smoke Ball Company [1893]. 1.2.4 Offer made through the internet Offers on the internet may be offers to the public at large. The fact that offers made electronically can potentially reach a wider audience does not, in itself affect these legal principles. However it is still important to communicate clearly who the offer is to, as under some jurisdictions it can be considered an invitation to treat if it’s not addressed to a specific party. 1.2.5 STANDING OFFER An indication by one party of his or her willingness to provide goods or services over a specific period. The offer is accepted each time an order is placed, giving rise to a series of independent contracts. The standing offer can be revoked at any time prior to an acceptance. Once revoked, no further acceptances are valid, unless the offer is renewed Great Northern Railway v Witham (1837).

1.3 WHAT IS NOT AN OFFER Statements made in commercial or business context, can be difficult to determine the precise intended legal effect. Some statements may not have al the requisite features to establish a legal offer and therefore will not form a binding agreement as the other party will be unable to accept. 1.3.1 MERE PUFF Advertisements commonly make exaggerations or unsustainable claim about products. These are referred to as mere puffery and do not form a legal offer Carlill v Carbolic Smoke Ball Company. This means the other party will be unable to accept to form a binding agreement. Some advertising can fall between the two categories of mere puffery or capable of being an offer. This is up to the court to consider how a reasonable person in the position of the offeree would interpret the advertisement Manufacturers’ Material Insurance Ltd v John H Boardman Insurance Broker Pty Ltd (1992). The court will consider vagueness of the statement, and other relevant details of the advertisement itself. 1.3.2 INVITATION TO TREAT This is an indication of a willingness to negotiate entry into a contract, however it is not a legally valid offer. Some examples include:

-) advertisement of goods for sale in a catalogue or window Grainger v Gough [1896] -) Usually an announcement inviting tenders, unless the announcement indicates that the lowest tender will be accepted Spencer v Harding (1870) In contrast, the following are construed as offers: -) Automatic Vending machines Thorton v Shoe Lane Parking Pty Ltd [1971] -) A notice at the entrance to an automatic car park Thorton v Shoe Lane Parking [1971]. The courts will take into account the likely effect on the customer when determining between whether an advertisement is an offer or invitation to treat Carlill v Carbolic Smoke Ball Co [1893]

** CATERGORISING OFFERS: ADVERTISEMENTS Most advertising techniques are regarded as invitations to treat by the party placing the advertisement . Whether the ad constitutes an offer will depend on language used and a variety of wider circumstances. AUCTIONS: With reserve- when an owner sets a reserve price, this means the auctioneer cannot sell the property unless he or she receives the reserve a bid at or greater than the reserve price. If no such price is reached, the property is passed in and not sold. Call for bids is an invitation to treat, each bid at the auction represents an offer that can be accepted or rejected Without reserve- this is less common a questions arises whether this constitutes an offer to the highest bidder, with each bidder making a conditional acceptance. Under this view, acceptance and formation is conditional upon the bidder being the highest bidder Warlow v Harrison (1920). TENDERING: A) Advertisement for tender: the legal status of advertising a tender represents a persons readiness to receive offers (akin to invitation to treat) Spencer v Harding (1870). Liability will therefore usually not arise if the person chooses not to accept the tenders, or does not consider the tenders in a bona fide way. However if a person indicates that the highest or lowest tender will be accepted this is generally construed as on offer, which the person accepts once the bid is placed Harvela Investments Ltd v Royal Trust Company of Canada [1986].

1.4 TERMINATION OF AN OFFER Offer can be terminated any time before acceptance, once accepted the offer is irrevocable Great Northern Railway Co v Witham (1873). (OPTION) Usually an offeror can revoke an offer even if he has promised to keep it open for a period of time Routledge v Grant (1828). However, of the offeree provides consideration for that promise, the offeror must keep it open, and the offeree is granted an option. Where the offer takes form of an option, the offer cannot be terminated before the time of the option has expired Goldsborough Mort v Quinn (1910). 1.4.1 WITHDRAWAL OF OFFER General rule, an offer can be withdrawn any time before acceptance Goldsborough Mort and Co Ltd v Quinn (1910). Withdrawal MUST be communicated to the offeree by the offeror or his or her agent Byrne v Van Tienhoven (1880). The communication may be effective even if made by someone other than the offeror or someone authorised Dickinson v Dodds [1876]. The requirement in this case was that the notification of withdrawal be from a reliable source. This is a question of fact and is established in each case. Offers to the world at large: As a matter of prudence, offerors should, to the extent possible use the same medium to advice withdrawal. An offeror who takes these steps may maintain that appropriate steps were taken to withdraw the offer, even if offerees were not made aware Shuey v United States 91875). 1.4.2 REJECTION BY THE OFFEREE If the offeree rejects the offer either expressly or impliedly, it is terminated Stevenson v Jacques and Co v McLean (1880). A counter offer operates as a rejection of the offer Hyde v Wrench (1840). 1.4.3 LAPSE OF TIME An offeror can specify a date and time in which the offer will lapse. When the offeror does not specify a date or time the offer will lapse in a ‘reasonable time’ Ramsgate Victoria Hotel Co v Montefiore (1866). What amounts to reasonable time is a question of facts which addresses the matters of- if the offer is not accepted in a reasonable time, it is withdrawn: or if the offeree does not accept within a reasonable, the offeree must be regarded as having refused it Manchester Diocesan Council for Education v Commercial and General Investments Ltd [1970].

1.4.4 FAILURE OF CONDITION SUBJECT TO WHICH THE OFFER WAS MADE Offers can be made which are expressly or impliedly subject to conditions, if the offer is not complied with the offer will cease McCaul (Aust) Pty Ltd v Pitt Club (1959).

1.4.5 DEATH

a) death of offeror:

Whether the death of the offeror terminates the offer may depend on the intention of the offeror as derived from the construction of the offer itself. E.g. if the offer was for the offeror to perform services, upon death, it would be reasonable to assume the offeror intends for the offer to lapse. However, for the sale of land, the intention maybe different as the transaction can be completed by the deceased estate.

b) Death of offeree:

Effect was examined by lord Sterndale in Reynolds v Atherton (1921). ‘the offer having been made to a living person who ceases to be a living person before the offer is accepted, there is no longer an offer at all. Offer is not intended to be made to a dead person or to his executors, ceases to be capable of acceptance’. However, the test may be that of intention, if it is a contract for sale of land, considered in the same light.

1.5 REQUIREMENTS FOR ACCEPTANCE DEFINTION An acceptance of an offer is the expression, by words or conduct, of assent to the terms of the offer in the manner prescribed or indicated by the offer. Thus acceptance may be express or implied HBF Dalgety v Morton [1987].

1.5.1 REQUIREMENTS OF ACCEPTANCE A person cannot accept an offer which ha snot been properly communicated Taylor v Laird (1856). There are two requirements for a valid acceptance 1.5.1.1 Offeree must assent to the terms of the offer Knowledge and act in reliance: 



Offeree must have knowledge or and act in reliance on offer consenus ad idem. Offeree must have knowledge of the terms at the time of the purported acceptance Tinn v Hoffman & Co (1873). Where acceptance of an offer is by action, the act performed must be for the purpose of accepting the offer Crown v Clarke (1927).

Person accepting must be offeree 



An offer can only be accepted by the person to whom it is made Reynolds v Atherton (1921). It will depend on whether a person falls within the class of persons entitled to accept the offer, which is a matter of contract construction Robinsons v McEwan (1865). Offers made to the world at large can be accepted by more than one person so long as they perform the acts specified to constitute acceptance, more than one valid contract has been formed Patterson v Dolman [1908] .

Counter Offer 



The offeree must agree to all terms of the offer. If the offer indicates acceptance of the offer, but on the basis of a different term suggested by the offeree, this will constitute a counter offer which can be accepted or rejected by the original offeror Hyde v Wrench (1840). A purported acceptance that departs from the terms of the offer but only in a minor, non material way be effective and not amount to a counter offer Turner Kempson v Camm [1932].

Acceptance must be unqualified 

A party may accept all of the terms proposed by the offeror, yet make the agreement subject to contract. Acceptance in this circumstances will depend on intention of the parties. Alternatively, if the parties agree on all the terms, and intend to be bound immediately but

still want a formal agreement drawn up, there will be a binding contract. Masters v Cameron (1954) more detailed rules in CERTAINTY

1.5.1.2 Acceptance must be communicated to the offeror The general rule is that acceptance has no effect until it is communicated to the offeror by his or her agent Byrne & Co V Leon Van Tienhoven & Co (1880). Method of acceptance stipulated by the offeror 

An offeror stipulates how acceptance should take place. Failure to respond in the manner specified may be a bar to contract formation. In some cases non-compliance will not be fatal. Accepting in a manner more advantageous to the offeror e.g. if the method prescribed is by post and the offeree accepts by phone or fax, this is likely to constitute a valid acceptance Tinn v Hoffman & Co (1873). If the method of acceptance was inserted for the convenience of the offeree, offeree can waive benefit and accept however Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970].

Acceptance by conduct 

The sufficiency of acceptance by conduct, rather than communication maybe express or implied. In some unilateral contracts, performance of the conditions are held to constitute acceptance Carllil v Carbolic Smoke Ball Co (1893).

Acceptance by silence 

The offeror cannot stipulate that silence constitutes consent. Alternatively silence is not considered acceptance Felthouse v Bindley (1862).

No method prescribed 

If no method prescribed, the appropriate method of acceptance ill depend on the intention of the parties derived from the facts. The court will look at surrounding circumstances to determine what reasonable is Quenerduaine v Cole (1883).

Acceptance by instantaneous communication  

The general rule regarding this is the contract will be formed when acceptance is communicated to the offeror. Instantaneous communication includes telephone, telex and transmission by facsimile and still render contracts incomplete applies to the aforementioned Enstores Ltd v Mils Far East Corporation [1955]. This can depend on circumstances due to restrictions of business hours etc Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34.

Electronic Translation Act 2001   

When an offer is accepted via email, the act is relevant to formation as follows: 24 Time of receipt (1) Unless otherwise agreed between the originator and the addressee of an electronic communication—

(a) the time of receipt of the electronic communication is the time the electronic communication becomes capable of being retrieved by the addressee at an electronic address designated by the addressee; or (b) the time of receipt of the electronic communication at another electronic address of the addressee is the time when both— (i) the electronic communication has become capable of being retrieved by the addressee at that address; and (ii) the addressee has become aware that the electronic communication has been sent to that address. (2) For subsection (1), unless otherwise agreed between the originator and the addressee of the electronic communication, it is to be assumed that the electronic communication is capable of being retrieved by the addressee when it reaches the addressee's electronic address. Postal Acceptance rule As the general rule is that a contract is only formed when the offerees acceptance is communicated to the offeror. This postal acceptance rule is the exception and applies when the post is used in contract formation. The rule is stated as follows: where is was in the contemplation of the parties that, according to ordinary usages of mankind, the post might be used as a means of the acceptance of an offer, or that the post was prescribed by the offeror as the method of communication of accepted, acceptance is complete as soon as it is posted Adams v Lindsell (1818). If the rule operates, it wont matter if the letter takes longer than usual to reach the offeror, or is lost, as the offeror bears this risk Henthorn v Fraser [1892]. The rule will be displaced if the offeror says or implies that actual communication of acceptance is required, or if it was not in contemplations of the parties to use the post Tallerman & Company Pty Ltd v Nathan’s Merchandise (1956). A revocation by post is not effective until it reaches the offeree (Byrne v Van Tienhoven). The postal acceptance rule can be excluded by setting a time for receipt of acceptance Holwell Securities v Hughes (1974). In applying the postal acceptance rule, the contract is formed when the letter is posted, a subsequent purported withdrawal of that acceptance will be ineffective Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994]. For more information seepage 69-70 of the textbook.

2.0 CERTAINTY AND COMPLETENESS The law attempts to uphold agreements wherever possible and the facts that a clause has more than one possible meaning will not render it void for uncertainty Hillas v Acros (1932). Where one party claims that the contract is invalid on he basis of uncertainty, or of failure of the parties to reach an agreement on all terms, and that claim is denied by the other party, the court must balance two policy objectives. 1. Court wants to give effect agreement made by the parties if it appears that they intended to be bound by that agreement Hllas v Acros (1932) 2. Court does not wish to hold parties to obligations where the agreement is cast in such vague terms that there is no indication they intended to be bound by it.

2.1 Statement of the rule “in order to constitute a valid contract, parties must so express themselves that their meaning can be determined with a reasonable degree of certainty” G Scammell and Nephew Ltd v HC and JG Ouston. There are a number of facets to this statement of principle 

 

A contract containing language that is so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intervention will be unenforceable G Scammell and Nephew Ltd v HC and JG Ouston. Even where uncertain or ambiguous language is not used, if parties have not agreed on all of the essential terms of the agreement, the contract will be unenforceable A contract will be unenforceable if it reserves a discretion for one party not to carry out his or her obligations Thorby v Goldberg (1965).

2.2 Ambiguity and Certainty Ambiguity and certainty can arise in a variety of contexts. 2.2.1 Individual terms – page 88 Clauses that the court consider to be vague, unambiguous or uncertain will be void Meaningless clause: one to which meaning cannot be attributed and will be void Fitzgerald v Masters (1956). Illusory: promises that are not real- promise is not enforceable 2.3 Saving ambiguous uncertain or meaningless contracts a) mechanisms to resolve uncertain Link to external standard: a clause that on its face may seem uncertain, can be enforceable if an external meaning can be given to it. The reference may be made in a direct way (standards within the

contract) or indirectly where the contract doesn’t provide for the link Hillas &Co Ltd v Arcos Ltd (1932). Link to reasonable standard: Courts may be willing to adopt principles to make an otherwise uncertain contract certain Hillas ‘ if the law can be invoked to determine what is reasonable in the way of specification, and thus machinery is available to be given the necessary certainty’. b) Severance of uncertain or meaningless term The invalidity of one term will not necessarily strike down the whole contract, if the invalid term can be severed, the remainder of the contract will be enforceable. The test for whether a term can be served was examined in Fitzgerald v Masters 1956). ‘If the clause covers incidental matters as did not obtrude themselves for consideration of the parties.’ As the parties would have been intended to be bound in the absence of clause 8, the HC upheld the contract of sale. However, if the clause forms a pivotal part of the contract, it will be unable to be severed Whitlock v Brew (1967). The question will be whether the remainder of the contract, after the meaningless or uncertain clause is severed, still reflects the actual inte...