CONTRACTS

CONTRACTS

n  A. Introduction to Contract

n  What Is a Contract?

n  A simple definition is: A contract is a legally enforceable agreement between two or more people

n  The crucial element of a contract is that it can be enforced by a court of law

TWO TYPES OF CONTRACT

n  Formal Contract?

n  A deed

n  Deed poll

n  Power of attorney

REQUIREMENTS OF A FORMAL CONTRACT

n  Must be in writing

n  Must be signed by the party or parties to be bound

n  Must be independently witnessed

n  Formerly had to be sealed and delivered

n  N.b. They do not require consideration

OTHER TYPES OF CONTRACT

n  Bilateral contract:

n  A contract in which two parties assume obligations, e.g. one party promises to pay, the other party promises to deliver

n  Unilateral contract:

n  A contract in which only one party assumes obligations, e.g. Carlill v Carbolic Smokeball Company [1892] 2 QB 484

MAKING A CONTRACT

n  A Simple Contract - Requirements

n  Agreement, i.e. an offer and an acceptance

n  An intention to create legal relations

n  Consideration

Formalities

n  General rule: contracts do not have to be in writing

n  Exceptions:

n  1. Formal contracts (deeds, contracts under seal)

n  2. Some contracts are required by legislation to be in writing, e.g. cheques, bills of exchange, promissory notes, contracts assigning copyright, contracts for marine insurance, contracts transferring shares

1. AGREEMENT

n  Definitions:

n  Offeror: the person who makes the offer

n  Offeree: the person who receives the offer

n  Traditional Analysis

n  Need to establish an offer and an acceptance

1. The Offer

a. What Is an Offer?

n  An offer may be described as the indication by one person to another of his willingness to enter into a contract with him on certain terms. ... an offer does have legal significance in that it creates in the offeree a power subsequently to create a contract by his own unilateral action... (Carter & Harland, Contract Law in Australia, Butterworths, 1991, p 23.)

n  Another definition: a promise to do, or refrain from doing something (usually) upon condition that the other party agrees to do or refrain from doing something else

b. Rules as to Offers

n  How does a court determine whether or not an offer has been made?

n  Test: What would a reasonable person think in the circumstances.

                Authority: Carlill v Carbolic Smokeball Company [1892] 2 QB 484

                N.b. This is an objective test

Arguments in Carlill’s Case

n  1. That the advertisement was a puff (i.e. a statement that no reasonable person would take seriously)

n  2. That the terms of the offer were too vague to be a definite offer because

n  A. No time limit was fixed

n  B. The terms of the ad were too vague

n  C. It was an attempt to contract with the world

n  D. The use of the smokeball could not be checked.

Rules as to Offers

n  i. To Whom Can an Offer be Made?

n  To an individual

n  To a group of people

n  To the whole world

Carlill v Carbolic Smokeball Company[1892] 2 QB 484

ii. Offers v Invitations to Treat

n  Invitation to treat:

n  Statements made to others inviting them to make an offer to you.

n  An offer to offer

n  An offer to negotiate

Is The Circulation of a Price List an Offer?

n  Grainger v Gough [1896] AC 325-said no on the facts in that case

Are Advertisements Offers?

n  Normally they are invitations to treat (Partridge v Crittenden [1968] 2 All ER 421)

                But c.f. Carlill’s Case

Is the Display of Goods for Sale an Invitation to Treat?

n  Fisher v Bell [1961] 1 QB 394 says yes

n  Pharmaceutical Society of Great Britain v Boots (Cash Chemists) Ltd [1952] 2 QB 795

n  Issue: when was the offer and contract made? At the shelves or at the cashier’s counters?

Is the Provision of Information an Offer?

n  Harvey v Facey [1893] AC 552

n  Telegram from Harvey to Facey ‘Telegraph lowest cash price for Bumper Hall Pen?’

n  Telegram from Facey to Harvey ‘&900’

n  Telegram from Harvey to Facey ‘We agree. Send us your title deeds.’

Conclusion: no contract

Rule:

n  An offer must be communicated to be effective

Issue: How Can an Offer be Terminated?

By withdrawing or revoking the offer at any time prior to acceptance

                Routledge v Grant (1828) 130 ER 920

n  But note the situation with an option contract, Goldsborough Mort Ltd v Quinn (1910) 10 CLR 674

n  Revocation must be actually communicated to the offeree-Byrne v Van Tienhoven [1874-80] All ER Rep 1432

n  But communication of a revocation to a reliable source will be sufficient - Dickinson v Dodds (1876) 2 ChD 463

Termination of Offer

n  b. An offer will terminate after a reasonable time, e.g. Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 Exch 109

n  Factors that the court will take into consideration

n  The nature of the subject matter

n  The means used to communicate the offer

n  Circumstances at the time the offer was made

n  c. The offer will terminate if the offeror or offeree dies

n  d. An offer will terminate if the offer depends on a particular state of affairs which ceases to exist prior to the offer being accepted

                Financings Ltd v Stimson [1962] 3 All ER 386

e. If the offer is rejected, e.g. counter offer.

                An offer will be rejected by a counter-offer.

                Definition: a counter-offer is an offer that changes the terms of the original offer.

                Effect: the original offer is no longer capable of being accepted.

                Hyde v Wrench (1840) 49 ER 132

Note: A request for information is not the same as a counter-offer, Stevenson Jaques v McLean (1880) 5 QBD 346

f. ‘The Battle of the Forms’

n  Butler Machine Tool v Ex-Cell-o Corp [1979] 1 WLR 401

Final Comments on Offers

n  Offers may be express or implied.

n  Calling something an offer does not necessarily mean it is an offer in the legal sense.

n  A revocation is ineffective if the offeree has accepted by part performance.

The Acceptance

n  a. What is an Acceptance?

n  Acceptance of an offer creates contractual relations. An acceptance is a communication to the offeror of an unqualified assent to both the terms of the offer and to the implied invitation in every offer that the offeree commit himself or herself to a contract. Acceptance may be by way of a counter-promise or promises or by way of performing acts which are specified in the offer. The former is called bilateral and the latter unilateral contract. (Cheshire & Fifoot, p 59)

n  “An acceptance is a final and unqualified expression of assent to the terms of an offer actually communicated  to the offeror” Gjergia v Cooper [1987] VR 167

Rules as to Acceptance

n  i. Acceptance must be unqualified and complete. If it is not it is in danger of becoming a counter offer, e.g. Hyde v Wrench (1840) 49 ER 132

n  A conditional acceptance is not acceptance

                -A conditional acceptance is an acceptance with ‘strings attached”

                -It cannot be an acceptance because it is not final

n  ii. Acceptance must be made in reliance of the offer

                R v Clarke (1927) 40 CLR 227

n  iii. Acceptance must be made in conformity with the offer

                e.g. as to time, place, or mode

                                Eliason v Henshaw (1819) 4 Wheaton 225

n  iv. The general rule is that acceptance must be communicated to the offeror

n  silence cannot be specified as acceptance, Felthouse v Bindley (1862) 142 ER 1037

n  Powell v Lee (1908) 99 LT 284

Exceptions

n  waiver of the need for communication, e.g. unilateral contracts (refer to Carlill’s Case)

n  the postal acceptance rule

What Is the Postal Acceptance Rule?

n  Acceptance is effective at the time of posting, not when communication is actually received, Adams v Lindsell (1818) 106 ER 250

Qualifications

n  N.b. The postal acceptance rule can only be applied when it is reasonable to do so, i.e. when it was reasonably within the contemplation of the parties that it would apply, Henthorn v Fraser [1892] 2 Ch 27

n  Rule may be excluded by terms of the offer itself – Holwell Securities Ltd v Hughes [1973] 1 WLR 757

When Is It Reasonable to Use the Post?

n  When the offer is made by post

n  It may depend on the subject matter

n  Are there other buyers in the market?

n  What if there is a postal strike?

n  What if there is a time limit?

Does the Postal Acceptance Rule Apply to Faxes, Email, Telephones?

n  Entores Ltd v Myles Far East Corporation [1955] 2 QB 327

n  Brinkibon Ltd v Stahag Stahl etc [1982] 1 All ER 293

n  Answer: it depends

Other Ways of Ascertaining Agreement

n  Test – do the facts, when viewed as a whole and objectively in light of the surrounding circumstances show, from the point of reasonable persons on both sides, a concluded agreement has been reached

n  Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110

n  By conduct

n  Brogden v Metropolitan Railway Co [1877] 2 App Cas 666

n  Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153