LAWS622 Notes PDF

Preview

Summary

Law of Contracts LAWS622 Law of Contract Mike French Suzanne McMeekin Week 1: Introduction to the law of contract Lecture A contract is an agreement giving rise to obligations which are enforced and recognised by law - (Treital) A contract is a promise which the law enforces on the basis that is sup...

Description

Law of Contracts LAWS622 Law of Contract Mike French Suzanne McMeekin

Week 1: Introduction to the law of contract Lecture A contract is an agreement giving rise to obligations which are enforced and recognised by law - (Treital) A contract is a promise which the law enforces on the basis that is supported by consideration – (Carter & Ren) A contract is a promise for the breach of which the law gives a remedy, or the performance of which the law recognises a duty (American Restatement of Contracts) Law of contract aims to - enforce certain promises and protect reasonable expectations generated by promises and by other forms of conduct - to protect those who have reasonable relied on the promises or behaviour of others from the harm or losses incurred through reliance. - to provide sanction/remedy for the breaches. The common law of obligations is the over-arching given name given to those areas of law which are concerned with obligations which people incur to others as a result of the relations and transaction in which they become involved: - Contract is a consensual – responsibilities are undertaken voluntarily - Tort is broadly concerned with civil injuries and wrongs and liability is imposed independently of the will of the parties - Restitution is concerned with the obligation to restore money or pay for benefits received where there has been no contract to pay for them – unjust enrichment The idea of a bargain is fundamental to the English concept of contract. Contract law is largely concerned with commercial transactions – a contract is a way of facilitating the exchange of goods and services. The law of contract is thus an important instrument of economic efficiency; by facilitating free and voluntary exchange. It also is an instrument for securing cooperation and trust in human behaviour, particularly in exchange transactions. People choose to enter a contract. Obligations are assumed. Contract law is largely concerned with commercial transactions – it facilitates the exchange of goods and services.

Law of Contracts

Historical origin and development Current influences on the law of contract: - Equity - Judicial flexibility - Inequality of bargaining power - Consumer protection - Statutory discretions - Good faith Generally, at common law there is no requirement for a contract to be in writing. Simple contracts are agreements made either by word of mouth or in writing – or a combination - Some agreements regarding certain persons or certain subject-matter are required to be in writing to be effective and enforceable Simple contracts versus deeds A simple contract does not need to be made in writing – although exceptions exist, sale of land for example. The unitary theory: the law of contract is concerned with the rules and principles applied within a conceptual framework against which all simple contracts are tested. The law of contract in NZ has been strongly influenced by the English law of contract. Contract and Commercial Law Act 2017 Contract formation and performance: Negotiations  agreement (formation of contract)  performance  discharge Issues regarding performance and formation – is there a contract? Is there an agreement? - Offer and acceptance Is the agreement legally enforceable? - Consideration - Intention to create legal intentions - Uncertainty Pre-contract conduct - Misleading conduct amounting to misrepresentation - Mistake - Duress, undue influence and/or unconscionable conduct What are the terms in the contract? - Express terms

Law of Contracts -

Implied terms Incorporation of terms What do the terms mean? Construction, exemption

Has the contract been performed? - Performance of the contract - Discharge other than by performance - Discharge by breach - Discharge by repudiation - Discharge for delay - Discharge by frustration What remedies are available? - Damages for breach of contract - Damages for misleading conduct - Specific performance and injunction - Restitution What defences may be raised? - Defences generally - Illegality Blue v Ashley – “is it possible under English law to make a contract without any formality, simply by word of mouth” – Legatt J Objective test RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH and Co KG [2010] UKSC 14 at [45]: "The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations." Intention of the parties is a central concept in the law of contract. The contract is presumed to give effect to the intentions of the parties. Intention is determined objectively - it is determined on the basis of what each party has led the other reasonable to believe to be their intention. Usually the reasonable person whose views are acted on is assumed to stand in the position of one or other of the parties The actual intentions of the parties can be important – if one party knows the other has no intention of contracting, despite an objective appearance of agreement, there will be no contract. Different types of agreement: - Bilateral and unilateral

Law of Contracts -

Executed and executory - Executed: money for goods and/or service at the time - Executory: promise to pay later but good and/or service to be delivered now

Workshop – none Readings Blue v Ashley

Law of Contracts Week 2: Formation Lecture With promises that are legally binding, if parties breach the contract there will be remedies. A contract by word of mouth is as good as a contract made in writing. The basic requirements of a contract are that: (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable . . .” Blue v Ashley [2017] EWHC 1928 (Comm) at [49] per Leggatt J Is there an agreement between parties? - Offer - Acceptance Is that enforceable? - Consideration - Intention to create legal relations - Certainty There is an agreement and the contract is formed when there is a congruence of a matching offer and acceptance Consensus ad idem: a meeting of minds, no agreement if difference in what the parties want “It is essential to the creation of a contract that both parties should agree to the same thing in the same sense. Thus, if two persons enter into an apparent contract concerning a particular person or ship, and it turns out that each of them, misled by a similarity of name, had a different person or ship in his mind, no contract would exist between them.” Smith v Hughes (1871) LR 6 QB 597 at 609 per Hannen J The concept of ‘agreement’ – the idea of bargain – is central to the law of contract. In theory, all the terms in the contract are set out by the offeror in the offer and those terms are accepted by the offeree Objective reasoning of the honorary honest sensible business persons. There may not be a formula in making an offer and accepting it. Contracts can come up through performance, what the parties have done, doesn’t always have to be offer and acceptance. NZ judges have foregone the traditional offer and acceptance analysis, but rather deal with the totality of dealings, as whole and objectively from reasonable persons on both sides.

Law of Contracts

“viewed as whole and objectively” Cooke J in Boulder Note the holistic approach is the exception, not the rule. Often courts tend to adhere to the more conventional approach of offer and acceptance. THE OFFER An offer is an expression of willingness by one person (the offeror) to contract with another (the offeree) on the terms stated in the offer. - The offeror must show that he/she has the intention to be legally bound, not just an intention to fulfil the promise. - The offer must be capable of acceptance The offer must be capable of acceptance by the offeree. It is the offeree who has the ultimate power to bring a contract into existence – an offer has no contractual force until it has been accepted. - See Leonard v Pepsico at 127 Only at the checkout do customers become bound, where the customer accepts offer and employee can refuse offer to buy; and customer is making an offer to buy – Pharmaceutical Society v Boots Cash Fair-trading Act; criminal offence to give misleading information regarding price. Advertisement / menu: invitation to treat - Only describes situation, is not an offer hence not legally binding, Patridge v Grittenden: advertisements and circulars, business sense in them being construed as invitations to treat and not offers for sale. See Grainger & Son v Gough also in saying that the price list does not amount to an offer so that as soon as an order there is a binding contract to supply that quantity. There is no absolute rule that communications of a particular kind such as newspaper advertisements are (or are not) offers. What matters is now a reasonable person in the position of the person to whom it was made would understand the offer. - Carbolic Smoke Ball v Carlill “it was intended to be understood by the public as an offer which was to be acted upon.” - “How would an ordinary person reading this document construe it.” Carbolic is an example of an exception to the fact that all advertisements are invitations to treat. The general rule is that an offer continues to be available for acceptance… - Until the time specified - Unless the offer is revoked by the offeror in the meantime - Provided that the offeree has not already rejected the offer.

Law of Contracts

An offer may come to an end because of prior revocation, prior rejection, lapse of time, death or failure of a condition. A counter offer to an offer is a rejection to the offer hence the offer comes to an end. Revocation: an offer may be revoked (withdran) by the offeror at any tine before acceptance. Offer doesn’t have to be open unless the person pays the offer maker to keep the offer open. Revocation must be communicated to the offeree for it to be effective. Lapse of time: - Where no time is stated it will come to an end after a reasonable time. - If time is mentioned, then on expiry. Sometimes an offer will be made subject to condition if the condition is not fulfilled revocation after a certain time is implied - Dystart Timblers Ltf v Nielsen Death: general rule is that offer terminates on death of offeror or offeree. An offer is terminated if the offeree rejects it - A counter offer has the same effect as rejection (Hyde v Wrench) An enquiry or request for further information does not constitute a rejection or counter offer – Stevenson v McClean Request for more information and counter offer – when the difference is unclear between the two, it is then to be asked what the reasonable person would think (Powierza v Daley) THE ACCEPTANCE The acceptance of the offer brings the contract into existence and both parties are legally bound by what they have agreed. - Failure to perform an obligation flowing from a legally binding promise gives the innocent party a right to damages (and possibly other remedies) The acceptance takes place when the customer puts his money into the slot (Thornton v Shoe Lane Parking) Requirements of acceptance: acceptance takes place when there is compliance with the requirements stated in the offer. Only the person to whom the offer was made may accept the offer – Lee v Sayers

Law of Contracts The offeree can only accept an offer if he/she knows about it – of accepting a reward (R v Clarke) Unequivocal acceptance: it must be clear that the offer is being accepted. Acceptance must be communicated to the offeror - Communication need not be by the offeree personally - The offeror can specify the manner of acceptance Acceptance can be inferred from conduct. Acceptance must be communicated to the offeror- “Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound.” Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 (CA) at 332 per Denning LJ Would the reasonable bystander consider the offer to have assented to the terms proposed by the offeror? Postal acceptance rule Electronic communications: there is no rationale for departing from the general rule that there must be a communication of acceptance as it is virtually instanteous – ie no contract comes into existence until the offeror actually receives the acceptance Unilateral contracts - In a unilateral contract the promisor promises payment or reward in exchange for the promisee performing a particular act or acts - It is “unilateral” because only the promisor is bound and the contract is concluded by the promisee’s act - The act to be performed by the promisee is normally requested and is always at least stated (expressly or impliedly) by the promisor as the condition on which performance of the promise becomes due - Usually the promisor will have expressly or impliedly waived the requirement for communication of acceptance - The promisee can only accept an offer if she knows about it and the act of acceptance must be done in reliance on the offer: R v Clarke (1927) 40 CLR 227 Should the offeror be able to revoke the offer where the offeree has embarked on (but not completed) the performance of the act or acts required? “. . . we do not accept that there is a universal proposition that an offeror is not at liberty to revoke the offer once the offeree “commences” or “embarks upon” performance of the sought act of acceptance (being also the sought executed

Law of Contracts consideration for the offered promise).” Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 (FC) at 229

Workshop Leonard v Pepsico: 1. Which court heard this case? 2. Briefly set out the material facts. 3. What was the central issue to be decided? 4. What were the facts in Mesaros v United States? 5. What rule did the court in Mesaros apply to determine that the advertisement and order forms issued by the United States Mint were not offers? 6. How was this reasoning applied in Pepsico? 7. What were the facts in Lefkowitz v Great Minneapolis Surplus Store Inc? 8. Why did the Court in Lefkowitz find the advertisement to be an offer? 9. How did the advertisement in Lefkowitz differ from the advertisement in Pepsico? 10. Is Pepsico distinguishable from Carlill v Carbolic Smoke Ball? If so, on what basis? 11. Explain in your own words the objective reasonable person standard. What was your subjective view of Pepsico’s advertisement? Is your subjective view relevant? 12. What was the decision of the court in Pepsico? Readings Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 - Lindley LJ - Dealing with an express promise hence whether this promise was intended to be a promise, and if so, whether it is binding - “It is necessary in order to make a binding contract, not only that it should be accepted, but the acceptance should be notified.” - Vagueness and uncertainty of language of the advertisement plays a role in construing an advert as a promise

Law of Contracts -

-

Defence of nudum pactum – that there is no consideration. However, advertises are benefitted if public reacts to advertisement thereby increasing sales and any person who uses smoke ball is inconvenienced thus there is consideration (cost + benefit). Bowen LJ - Defence points: terms too wide, offer to the world, unreasonable to to suppose it a definite offer. - Advertisement must be read in its plain meaning, as the public would understand it. - Intention behind advertisement is that it should be promoted and that the use of it should be increased - The extravagance of promises is no reason in law as to why they shouldn’t be binding. - If the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. - Performance of the condition is sufficient acceptance without notification. - How to determine whether the person who makes the offer implies that notification of acceptance will not be necessary to constitute a binding bargain? – Look at the offer itself. In advertisement cases it is inferred that the person is not to notify his acceptance.

Leonard v Pepsico 88 F Supp. 2d 116 (1999) - Facts: D advertised a promotional for Pepsi Stuff on TV. In the commercial, it listed several items such as jacket, a tshirt and sunglasses as prizes redeemable with Pepsi points. At the end of the commercial, a Harrier Jet is shown, valued at 7m Pepsi points. The jet was not listed in the catalogue of prizes. P send in a cheque ($700K) purchasing 7m Pepsi points asking for the Harrier Jet, which is in reality valued at $23m. D responded by returning the cheque with a letter stating that the Jet offer has been made in jest. P filed suit. - Issues: Did D’s inclusion of a Harrier Jet in the advertisement consist of a genuine offer, even though it was meant to be humorous? No. Was P’s subjective belief that the offer was genuine entitle him to enforcement of the promise? No. - Rationale: The reasonable person clearly would not have taken the offer of the Harrier Jet seriously. D and P’s specific states of mind are irrelevant. Thus, no real offer was made in the context of the TV commercial, and P was not justified in believing it was a genuine offer. - Law: If an offer is made that is clearly meant to be a joke and interpreted as such by an objective standard, it does not constitute a binding offer. Mesaros v the United States of America 845 f. 2d 1576 (Fed Cir 1988) - Facts: The Act authorised the U.S. Mint to strike specific quantities of three types of commemorative coins depicting the national landmark. The federal government processed the cash sale orders of other buyers before honoring the numismatists' orders to be billed to credit cards, with the consequence that the statutory run of production was exhausted before the numismatists' orders were filled. The numismatists, therefore, filed suit in breach of contract,

Law of Contracts

-

-

-

-

seeking equitable relief. The trial court granted the federal government's motion in the alternative for summary judgment or to dismiss the numismatists' complaint Issue: Was the United States Mint's advertisement a solicitation of an offer or an offer? Opinion: The plaintiffs contended that the materials send to them by the Mint constituted an offer that upon acceptance by the plaintiffs created a binding contract between them and the government whereby the government was bound and obligated to deliver the coins ordered by them. It is well established that materials such as those mailed to prospective customers by the Mint are no more than advertisements or invitations to deal. They are mere notices and solicitations for offers that create no power of acceptance in the recipient. A basic rule of contracts holds that whether an offer has been made depends onthe objective reasonableness of the alleged offeree's belief that the advertisement or solicitation was intended as an offer. Generally, it is considered unreasonable for a person to believe that advertisements and solicitations are offers that bind the advertiser. Otherwise, the advertiser could be bound by an excessive number of contracts requiring delivery of goods far in excess of amounts available. The Mint makes clear that the contention of the plaintiffs that they reasonably believed the materials were intended as an offer is unreasonable as a matter ...