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WK1: INTRODUCTION TO CONTRACTS Common Law - Contracts is a subject heavily based on and indebted to common law (including Equity). - Study of legal principles through analysis of cases and court judgments. - Christopher Columbus Langdell developed the case-law method. - Emphasis on learning legal principles “from the bottom up” through the application of law to cases. - Decided cases provide the basis for many tutorial questions, assignments and exam questions. - Statutes add to, update or modify the common law principles . Legal problem solving model - An applied form of problem-based learning (PBL). - Recommended for answering hypothetical problem questions. - Focus of Week 1 Tutorial. - A higher order form of learning. - Applying the law to solving problems. Four-Step Process (ILAC) • PPT presentation: “How to Answer an HD Law Hypothetical” in iLearn. • Issue (identify the issue to be resolved). • Law (identify the law to be used to solve the issue). • Application (apply the law to the facts in the problem). • Conclusion (provide the concluding advice to the problem). Overview of contracts Contract formation - How do we know whether parties have entered into a contract? - What elements need to be satisfied before a court will enforce an agreement between two people? - Offer and Acceptance analysis. - Consideration, Intention, and Equitable Estoppel. - Certainty, Completeness, and the role of formal requirements such as Writing. Contents of a contract - How does a court determine what the parties have actually agreed? - How do courts classify the various statements parties make during negotiations? - Express Terms and Implied Terms. - Principles of construction (interpretation) of contractual terms. - The use of contractual terms to exclude or limit the liability of the parties. Vitiating factors - Was the contract formed without genuine consent or free will? - In what circumstances could a court set aside or vary a contract? - Duress, and Misrepresentation (and Misleading or Deceptive Conduct under statute). - Mistake, and Undue Influence. - Unconscionability (under the general law and statute). Illegality - When may a contract may be deemed illegal or unenforceable? - In what circumstances could a contract be against public policy or the public interest? - Common law illegality and statutory illegality.

Privity of contract - What rights may persons have under contracts to which they are not parties? - How does a non-party expecting a benefit under a contract obtain their benefit? - The Privity rule and its exceptions. Contract theory and contracts in context - Analytical and normative theories of contract. - Understanding the historical place of contract. - How do non-lawyers look at contract law in a commercial context? Fundamental concepts Significance of contract law - Contract Law is fundamental to the study of other core and elective Law units. - It is fundamental to many aspects of social and commercial reality. Sources of Contract Law - General Law (Common Law and Equity) and Statute. - International Law (where domestic law allows). - Hierarchy of sources: Can the relevant law be found in statute? If not, the law will be found in common law principles, but common law principles may be qualified by equity. Definitions of Contract - Law of Obligations (contract and tort). - Basic concepts of Agreement and Promise. - A contract may be seen as an agreement between two or more parties that a court will enforce. Classification of contracts Promissory Intent - Bilateral contract: the offeror’s promise is met by the offeree’s acceptance of that promise; an exchange of promises; the contract is formed when the promises are exchanged. - Unilateral contract: the offeror’s offer is accepted by the offeree’s performance of an act specified in the offer; an act in exchange for a promise; the contract is formed when the act is performed. Formation - Express or implied contracts: Clarke v Dunraven [1897] AC 59. - Simple contract: requires no particular form; written or oral; must satisfy formative elements and require consideration; most common form of contract. - Formal contract: represents a unilateral solemn promise; must be in writing; form takes the place of consideration; typically in the form of deeds. Enforceability - Valid contract: satisfies the elements of formation and is enforceable. - Void contract: no contract ‘ab initio’ (from the beginning); no rights and obligations have arisen. - Voidable contract: a valid contract that can be rescinded, usually because of a vitiating factor such as lack of consent; innocent party may also seek damages for any loss. - Unenforceable contract: may be valid but cannot be enforced; usually because of lack of a formal requirement, such as writing. - Illegal contract: the purpose of the contract is contrary to statute or the common law; in some cases the contract may be unenforceable.

Performance - Executed contract: one where the contractual obligations have been performed. - Executory contract: one where the obligations of both parties are outstanding and yet to be performed. Remedies Common Law - Damages: principal remedy for breach; monetary compensation for loss; court determines quantum, which depends on the measure of damages (difference between plaintiff’s position and position plaintiff should have been in but for the breach); given as of right; substantial v nominal damages. Equity -

Specific performance: court order to enforce a positive contractual obligation; discretionary. Injunction: court order to enforce a negative contractual obligation; discretionary. Rescission: court order that validates a suit to cancel or void a contract. Restitution, Rectification, Estoppel.

Remedies not dependent on contract - Remedies in Tort: Deceit (Fraud) and Negligence. - Remedies in Statute: Misleading or deceptive conduct. WK2: AGREEEMNT Contract formation 3 principle formative elements: 1. Agreement 2. Consideration 3. Intention Other elements include: Certainty, completeness, formal requirements (if any) such as writing). Court must decide whether parties have formed a contract and are legally bound to each other. Agreement - A promise is enforceable only if the other person has agreed to give something of value in return for the promise. - Otherwise the promise is gratuitous and unenforceable. - Courts use Offer and Acceptance analysis. - The words and conduct of the parties are analysed chronologically to decide whether contract has been formed and to determine its terms. - Objective (reasonable person) test is used. - In some cases, alternatives to offer and acceptance analysis may have to be used. Offer -

Statement or conduct upon which the maker is prepared to be bound; offer objectively demonstrates a willingness to be bound; statement must contain promissory intent. A statement that is equivocal or ambivalent, or has unclear essential terms, will usually indicate that no offer has been made. “In determining whether an offer has been made the correct approach is to ask whether [the offeree] (having the knowledge of the relevant circumstances which [the offeree] had), acting

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reasonably, would understand that [the offeror] was making a proposal to which he intended to be bound in the event of an unequivocal acceptance”: Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd [2010] EWCA Civ 1331 at [25]. Gibson v Manchester City Council [1979] 1 All ER 972. An offer has to be found in the words and conduct of the parties. Some things may resemble offers but do not amount to offers. The most common example is an invitation to treat.

Invitations to treaties - Statements that are not offers but invitations to make an offer. - Very common in advertising material, brochures, catalogues, retail. - One party is looking to negotiate or is inviting people to make offers. - An advertisement is an invitation to treat where the supplier is making representations to potential customers and inviting the customers to make offers to purchase the goods. - Goods on display in a shop are invitations to treat where the shop keeper is inviting the customer to make an offer for the goods: Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401. - An auction is an invitation to treat: Harris v Nickerson (1873) LR 8 QB 286. - Leaflets, price lists, job advertisements, calls for tender etc are invitations to treat. - This rule comes from courts’ recognition of commercial convenience and reality. - An invitation to treat generally lacks promissory intent, and is not an offer. - In some cases an advertisement may amount to an offer where it shows a clear promissory intent, that is, it is a statement to which the maker of the statement is objectively prepared to be bound. - “Where the offer is clear, definite and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract”: Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957). - An advertisement containing a reward may amount to a unilateral offer: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. Tenders - A call for tenders is usually an invitation to treat, and the submitted tender is the offer. - But in some cases the call for tenders may objectively amount to an offer. - If the invitor states the lowest tender will be accepted, then a contract arises with the party submitting the lowest tender: Harvela Investments Ltd v Royal Trust Co of Canada (CI) [1986] 1 AC 207. - Also be binding as offers where the call promises to treat any submitted tender in a particular way, or to follow a certain process. - In such cases a binding “process contract” may arise. - The invitor stipulates that the tenderer must comply with certain requirements or the tenderer has to follow a certain process (unilateral offer). - If the tenderer does follow that process (acceptance), a process contract may be formed. - If that process is not followed, a breach of contract may result: Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25. - Breach of the process contract may lead to damages for loss of opportunity. - Many government invitations to tender now include clauses designed to exclude the possibility of a process contract: State Transit Authority of New South Wales v Australian Jockey Club [2003] NSWSC 726. To whom can an offer be made? - To one person, a group of persons, or to the world at large: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. How long does an offer last?

- It does not last forever. It will last until it is terminated or revoked. How may an offer be terminated? • By the lapse of time that is specified in the offer, or by lapse of a reasonable time: Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Ltd (1988) 14 NSWLR 523. • By rejection: Rejection may be express or by way of a counter-offer. A counter-offer terminates the offer: Hyde v Wrench (1840) 49 ER 132; A counter-offer must be distinguished from a request for information: Stevenson Jacques & Co v McLean (1880) 5 QBD 346. • By failure of a condition if the offer was made subject to an express or implied condition: Financings Ltd v Stimson [1962] 3 All ER 386. Revocation - The offeror is free to revoke or withdraw the offer: Routledge v Grant (1828) 130 ER 920. - To be valid, revocation must satisfy two basic requirements: (1) it must take place before acceptance, and (2) revocation takes place when it is communicated to the offeree. Communication of revocation - Revocation may be communicated by the offeror or by someone who may reasonable be seen as a reliable source, such as the offeror’s agent: Dickinson v Dodds (1876) 2 Ch 463. - In cases of non-instantaneous communication (by post), the general rule is that revocation takes place when it is received by the offeree. - In cases of instantaneous communication (by fax) it takes place when the offeree could reasonably be expected to have accessed the message. - Normal business hours – when the fax is physically generated by the offeree’s fax machine (regardless of when the offeree actually reads it). - Outside of normal business hours – at the start of normal business hours the following day. - In cases of instantaneous communication by email courts originally held that it was similar to faxes. - Regulated by Cth and State Electronic Transactions Acts. - Where the offeree has stipulated an email address, communication takes place when the message enters the offeree’s information system. - Where the offeree has not stipulated an email address, communication takes place when the message comes to the actual attention of the offeree. Promises by offeror not to revoke offer - A promise by the offeror not to revoke must be supported by consideration to be enforceable. - This problem may be avoided by using an option contract (a contract to keep an offer open): Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674. Revocation of unilateral contracts - The offeror must communicate revocation in the same way the offer was communicated. - Where the act of acceptance necessarily takes time, revocation is effective (even if the offeree has commenced acceptance) if the act is for the offeree’s benefit: Mobil Oil Australia v Lyndel Nominees (1998) 153 ALR 198. Acceptance Nature of acceptance - If an offer is established, the court will look for an acceptance of that offer. - Acceptance is a clear indication by the offeree that they will enter into the agreement on the offeror’s terms. - The court uses an objective test to analyse the parties’ words and actions; it looks for a meeting of the minds or consensus ad idem. - Acceptance may be seen as the mirror image of the offer; a valid acceptance cannot be conditional.

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Any condition that the offeree puts on the acceptance turns it into a counter-offer.

Acceptance must be in reliance on the offer - The offeree must be relying on and responding to the offer; the offeror must be aware of the offer. - If the offeree does know about the offer, a rebuttable presumption arises that acceptance was in reliance on the offer: R v Clarke (1927) 40 CLR 227. Acceptance may be expressed or implied - Acceptance may be express, or implied by the conduct of the offeree. - Silence or lack of response is not valid acceptance: Felthouse v Bindley (1862) 142 ER 1037. - However, silence may constitute valid acceptance where an equitable estoppel case can be raised against the offeree, or where the offeree’s conduct implies that the offer is accepted. - ‘The ultimate [factual] issue is 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.’ Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. Acceptance must be communicated - Acceptance is only effective once it has been communicated to the offeror: Tinn v Hoffman & Co (1873) 29 LT 271. - Communication of acceptance take place when it is received by the offeror. - The exceptions to this are (1) in cases of unilateral offers (2) where the postal acceptance rule applies. - Where the postal acceptance rule applies, acceptance takes place when it is sent. - The postal acceptance rule is a rule of convenience; contracting by post implies a risk to both parties. - The rule puts the risk on the head of the offeror because they can exclude the operation of the rule by stipulating the conditions of acceptance. - The rule applies only where it is “reasonable, authorised or contemplated” that acceptance can be by way of post: Henthorn v Fraser [1892] 2 Ch 27. - If the offer is made by post, and no demands or conditions about acceptance are in the offer, postal acceptance would probably be reasonable. - "The general rule is that a contract is not completed until acceptance of an offer is actually communicated to the offeror … A finding that a contract is completed by the posting of a letter of acceptance cannot be justified unless it is to be inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act.“: Tallerman & Co v Nathan’s Merchandise (1957) 98 CLR 93. - The crucial question is whether the offer makes it sufficiently clear that actual communication is necessary in order for acceptance to be valid: Bressan v Squires [1974] 2 NSWLR 460. Revocation of postal acceptance by speedier means - An unresolved question in Australia is whether (where the postal acceptance rule applies) a posted acceptance may be revoked by advising the offeror of rejection before postal acceptance arrives? - On one view, the revocation is invalid because of the operation of the rule, which states that acceptance took place when it was posted: Wenkheim v Arndt (1873) 1 JR 73. - On another view, the revocation is valid because the offeree has rejected the offer in the very first actual communication with the offeror, notwithstanding that the acceptance has been posted: Dunmore v Alexander (1830) 9SH (Ct of Sess) 190. Alternatives to offer and acceptance analysis - Strict application of offer and acceptance analysis is sometimes unsuitable, especially in cases where parties in ongoing commercial relationships use their own forms to make offers or to accept offers.

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These battle of the forms cases often involve conflicting terms and conditions in the forms and there is no clear consensus ad idem: Butler Machine Tool Co v Ex-Cell-O Corp [1979] 1 All ER 965. Courts have various approaches to find agreement, or the actual terms of the contract: Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd’s Rep 357 at 361; Goodman v Cospak [2004] NSWSC 704.

WK3: CONSIDERATION, EQUITABLE ESTOPPEL, INTENTION Consideration Nature of consideration - To be binding and enforceable as a contract, an agreement requires the exchange of something of value. This is consideration and it must be present in every simple contract. - In a bilateral contract, the consideration is in the promise each party gives to the other. - In a unilateral contract, one party provides the promise and the other provides the act. - There is no simple contract if there is no promise for a promise or no act for a promise. There would only be a “gratuitous promise” – a promise not supported by consideration. - A valid offer followed by a valid acceptance usually means that consideration has been given by each party – as long as the rules of consideration have been met. Deeds - A gratuitous promise can be enforced only if it is contained in a deed. - A deed is the traditional way of making a solemn unilateral promise enforceable. No consideration is required because the solemnity and formality of the deed takes the place of consideration. - A deed is a formal contract. - The formal requirements of the deed are mandated by statute: A formal written document; it must on its face state it is a deed; it must state that it is “signed, sealed and delivered”; it must be executed in front of a person who is authorised to witness the deed. Failure to comply with a deed allows damages at common law. But in equity, a deed is not enforceable. - A typical example of a deed is a deed of release, whereby one party promises to release the other party from a debt incurred under a simple contract, and where no consideration is given for the promise. - Deeds have strategic advantages (eg limitation period) and evidentiary advantages (eg recitals that set out the factual background to the deed). Consideration must be bargained for - Before a promisee’s promise or act can be regarded as consideration, it must be established that the promise or act is given at the request of the promisor and in reliance upon the promisor’s promise: Australian Woolen Mills v The Commonwealth (1954) Consideration must move from the promisee - Only the party providing consideration can enforce a promise. - In a typical bilateral contract (promise for promise) both parties can sue for a breach of promise because both parties have given consideration and both parties are promisees (as well as promisors). - However, consideration need not move to the promisor; it may move to a third party: Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] - There is an exception in the joi...