The parties in this matter have entered in a uni-lateral contract for the (purchase and sale of land, purchase and sale of goods, purchase and sale of property). Under a uni-lateral contract only one of the parties comes under an obligation to do or refrain from doing something (United Dominions Trust Ltd v Eagle Aircraft Services Ltd). ‘Informal’ or ‘Simple’ Contract- Constitute the vast majority of contracts that are formed, and apply to those that are orally expressed, with little or no formality. However, informal contracts may also relate to those that are recorded with great care and refinement.
Express Contract- is a contract whereby most of its terms are coherently and concisely explained and made known to all parties. Implied Contract- A contract which is not given in writing, but is created on the basis of the behavior of the parties which suggests that they are acting under an agreement. CONSUMER CONTRACTS- Contracts made by individuals, who are looking to find property or services for their own personal use or utilization. COMMERCIAL/ BUSINESS CONTRACTS- Are those contracts formed by businesses who are searching for property or services in order to resupply, or for use in other commercial business or enterprise.
FORMATION OF A CONTRACT AGREEMENT (Consensus ad idem/ meeting of the minds) There are 3 areas that deserve special mention in regards to the nature of an agreement: Parties do not have to discuss and consciously agree to every single term laid out in a contract for an agreement to be reached. In this case, real assent may exist when parties have only really read the main terms and agreed to those (such as prices and delivery dates). The courts will always adopt an objective approach when asked to confirm whether or not a contract has been formed.
They will base their answer on how a reasonable person would view the behaviour of the parties. Therefore, if a reasonable person was to conclude that an agreement had been reached, then each party would be bound to following the terms laid out in the original contract. Commercial necessity requires the courts to take on this approach, as secret mental reservations by one party could otherwise terminate a contract that the other party had relied on. Inequality between the bargaining power of parties is not paid much attention to in the eyes of the law.
If one party has a large amount of market power regarding the goods and services sought by the other, the weaker party may have to accept those terms or be left without the desired goods/ services. The courts will only interfere if it is believed that the dominant party used ‘illegitimate’ pressure to ensure a contract was formed. OFFER AND ACCEPTANCE a) OFFER General Statement: An offer is a promissory statement of terms that is made by an offeror to an offeree and invites acceptance (Australian Woollen Mills Pty Ltd v The Commonwealth).
An offer may be made to another party or the world at large (Carlill v Carbolic Smoke Ball Co). When an offeror makes an offer they must be prepared to be bound by those terms upon acceptance by the offeree. The courts employ an objective test to determine whether a statement amounts to an offer, which must be distinguished from a non-binding supply of information (Harvey v Facey). Similarly, the offer must be separated from the pre-contractual negotiations, which are also unenforceable. More information: The person who makes an offer is called the ‘offeror’, whilst the person who is accepting the offer is the ‘offeree’.
An offer can either be expressed or implied. An offer can be made to an individual, a group of individuals, or the whole world at large (Carlill v Carbolic Smoke Ball, 1893). Offers must be distinguished from statements of fact, expressions of opinion, representations about the future, or statements of policy. Because these are not promises made in exchange for something sought from the promise, they cannot amount to offers. DIFFERENCE BETWEEN ‘OFFER’ AND ‘INVITATION TO TREAT’ Invitation to Treat: An invitation to treat is different from an offer in that it cannot be accepted and is not binding.
Instead it is made to the world at large and invites another party to make an offer, which the party making the invitation can then accept or reject. Simply put, an invitation is an indicator of a party’s willingness to negotiate entry into a contract (Carlill v Carbolic Smoke Ball Co). The display of goods in a store is an invitation to treat (Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd). Items appearing in retail outlets, even if the price is attached, are regarded as an invitation to treat. Advertisements in Newspapers and Magazines
These are also considered invitations to treat unless the advertisement is couched in terms which indicate the retailers willingness to be bound if the specified terms are accepted (eg. there is a promise (Carlill) rather than a mere invitation (Partridge v Crittenden). Auctioneers request for a bid (Harris v Nickerson). The advertisement of an auction is considered an invitation to treat on the part of the auctioneer. The auctioneer may withdraw items from the auction or cancel the auction all together without incurring any liability from potential bidders.
Advertisements of good for sale in a catalogue (Grainger v Gough) Circulars, which provide information about items for sale and their prices, are regarded as invitations to treat. If it were regarded as an offer and the manufacturer ran out of stock, they would be in breach of contract for anyone who accepted such an offer as they could not provide stock AN INVITATION TO TREAT IS MOST LIKELY TO OCCUR: If the person making the statement clearly expresses that they do not intend to be bound by the recipients assent.
The mere use of the words ‘offer’ and ‘acceptance’ is not necessarily indicative of the confirmation of an offer. The more definitive language used, the more likely it is to be regarded as an offer. If it would be commercially inconvenient to interpret a communication as an offer, the courts will tend to regard it as an invitation to deal. If the language used in the wording indicates that further discussion is needed between the parties before it is concluded, the statement is most likely to be an invitation to treat. Communications inviting the submission of tenders are generally regarded as an invitation to deal.
BAIT ADVERTISING Basic Definition: An illegal practice whereby a retailer lures a customer by advertising goods and services at exceptionally low prices; then, once the customer contacts the retailer, they can decline to accept the customers offer to purchase. They are able to do this because of the distinction between an offer and an invitation to treat. S. 56 of the Trade Practices Act (1974 Cth) and similar provisions in the Fair Trading Acts prohibit bait advertising, making it ‘an offence for a supplier to advertise goods or services for sale at a specified price when the supplier has grounds for believing that it will not be able to supply those goods or services in reasonable quantities, or for a reasonable time’4 Bait Advertising is extremely hard to prove TENDERS Basic Definition:
To offer a product for sale at a specified price, usually in response to a specific request from a potential purchaser. AN OFFER MUST BE DISTINGUISHED FROM: A REQUEST FOR INFORMATION A COUNTER OFFER STATEMENTS OF POSSIBLE TERMS TERMINATION OF OFFERS As a general rule, an offer will terminate should any of the following occur: REVOCATION of the offer by the offeror;
REJECTION of the offer by the offeree COUNTER OFFER by the offeree FAILURE of the offeree to accept on time DEATH of the offeror or offeree, FAILURE of a condition REVOCATION Revocation of an offer is a communication by the offeror to the offeree that the offer is withdrawn, and can occur at anytime before the offer is accepted. Although precise words of revocation do not need to be used (as long as the offeror’s intention is sufficient through oral means or by conduct), the revocation must be communicated to the offeree somehow. This does not have to be done in person. Case: Byrne v Van Tienhoven 1880.
REJECTION Rejection is the communication of the offeree to the offeror that the offer is not accepted, and generally means that the offeree cannot change his/her mind and ‘accept’ at a later stage. A rejection will not be effective until it is communicated to the offeror. COUNTER OFFER A counter offer is made in response to an offer, whereby the offeree will respond to the offerors offer by asking them to enter into another contract, with terms that are different to those in the original offer. A counter offer acts as a rejection of the first offer, effectively ‘killing’ it, thus it cannot be accepted.
A mere request for ‘more information’ must be distinguished from a ‘counter offer’, and does not create a rejection of the offer. Case: Hyde v Wrench 1840 LAPSE OF TIME An offer may become incapable of being accepted if there is a specified time limit which must be observed. Any acceptance of the offer after this particular lapse in time will be ineffective. However, if there is no time limit set on the offer, it will become incapable of being accepted after a REASONABLE amount of time. A court will decide what is ‘reasonable’, and it will be focused around the product or service on offer.
DEATH OF THE OFFEROR OR OFFEREE An offer cannot be accepted upon the death of the offeror or offeree. However, it is worth noting that the other party must be informed of the death for termination of the agreement to occur. Therefore, if the offer is accepted in the ignorance of the death, a contract will still be formed. When a contract is of a personal nature, a contract cannot be formed. FAILURE OF A CONDITION ‘If an offer is made to terminate on the occurrence, or non- occurrence of a condition, it will cease to be capable of being accepted once that condition occurs’5. b) ACCEPTANCE General Statement:
Acceptance is an unqualified assent to the terms offered (Seddon & Ellinghaus) Acceptance must be effectively communicated to the offeror (Taylor v Laird). The offeror may stipulate in the offer a particular mode of communicating acceptance and the subsequent acceptance must comply (Seddon & Ellinghaus). It is well founded that an offeror cannot hold an offeree contractually liable by relying on silence alone as a form of acceptance (Felthouse v Bindley). The question of acceptance can be assessed subjectively or objectively; however, the courts favour the latter approach (Taylor v Laird).
More Information: To constitute an acceptance, an offeree’s statement or conduct must occur in response to the offer. READ EXAMPLE BELOW. Therefore, if an offeree communicates with the offeror in ignorance of the offer, or without being influenced by it, his or her conduct will not amount to an acceptance of that offer. For example: A lost his dog and placed an add in the local paper, stating that $100 would be given to anyone who found his pet. A’s next door neighbour, B, found it and because he knew where the dog lived, he returned it to A without having read the offer in the newspaper.
Thus, legally there was no contract formed between the two parties, and A does not have to give B the $100 in the eyes of the law. Acceptance can occur through conduct. According to the NSW Court of Appeal, the test to be applied is ‘whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signaling to the offeror that his offer has been accepted’ (Brogden v The Director of the Metropolitan Railway Company) An individual, group of individuals or the whole world at large is able to accept an offer.
Acceptance of an offer must correspond exactly to the terms laid out in the offer; if the offeree is willing to accept an offer, but does so in terms which are materially different, that communication will amount to a counter offer. Eg, If A offers to sell his car to B for $5000, and B tells A that he will purchase the car for $5000 if new wheels are put on it before purchase, B is not corresponding to the terms laid out in the offer, and is instead making a counter offer. There must be communication of an acceptance to the offeror for a contract to be formed.
It is not sufficient for the offeree to mentally note that they will accept the offer. The agreement will be concluded at the time acceptance is received by the offeror, and NOT at the time it is sent by the offeree. Regarding mechanical devices being used to communicate acceptance, such as a phone message or fax, acceptance is deemed to be received when the message is given to the offeror, whether or not it is actually read. Acceptance is said to occur when it is received by the offeror, rather than at the place from which it is sent; and is especially important in those cases in which the offeror and offeree live in different jurisdictions.
WAIVER The need for communications in an offer can be waived, either expressly or by implication, in some circumstances. For example, in Carlill v Carbolic Smoke Ball Co, the nature of the offer assumed that it would have been unnecessary for those accepting the offer to communicate their acceptance in advance of performing the acts asked of them. ESTOPPEL Estoppel is a legal doctrine that may be used in certain situations to prevent a person from relying upon certain rights, or upon a set of facts (eg. words said or actions performed) which is different from an earlier set of facts6.
With regards to contract law,’ if the offeror does not receive an acceptance because of fault on his or her behalf, he may be prevented (‘estopped’) from denying that the acceptance had been communicated’7 THE POSTAL RULE This rule states that, where it is clear that acceptance can be communicated by post, acceptance is deemed to be effective from the moment and at the place a letter of acceptance is posted, or a telegram is delivered for transmission. The contract is therefore formed at the exact time and location where the letter or telegram is posted.
The postal rule does not apply to any other forms of communication, and does not extend to instantaneous forms of communication; telephone messages, facsimile, email or telephone. It must be noted that the postal rule can only apply when it is clearly obvious that the proceedings of a contract are being undertaken completely through the mail, which is quite rare these days. Consequently, the offeror has the right to ensure that the post is not to be used to relay acceptance by stating this in the terms of the offer.
The postal rule may also not apply if the letter was delayed or lost due to it being wrongly addressed or stamped, or if it was unreasonable for the offeree to use the post in particular circumstances (eg, if there was a postal strike) In general, the postal rule is an old common law rule that is an EXCEPTION to the rule that acceptance must be communicated. FORM The offeror may stipulate the form in which the offer is to be accepted. If that particular method of acceptance is not adhered to, there will be no contract formation.
If the offeror merely ‘suggests’ a manner in which acceptance can occur, any equally quick or quicker method is sufficient. c) CERTAINTY Basic principle: A contract cannot be binding if it is uncertain or ambiguous in any material respect. This is due to the fact that if this occurs, there has not been a true ‘consensus ad idem’ between the parties. A contract can be uncertain, and thus be confirmed ‘void’, in one of 3 ways: a) A contract may be too vague and ambiguous, such that courts are unable to give that contract a sufficiently clear meaning.
b) If a contract leaves out essential terms or crucial matter, it will be labeled incomplete and thus be inoperative. c) If the parties have only made an agreement to make a contract (agreement) in the future. VAGUE CONTRACT If a contract seems difficult to interpret, courts will not be deterred from upholding an agreement, especially if the contract which is vague is said to have been performed wholly or partly by the parties. Thus, if the courts or an arbitrator believe the contract is capable of meaning, they will decide on the meaning of the terms and its application.
This will occur via the use of admission of extrinsic evidence to explain words or phrases, reference to custom in a particular trade or locality, reference to the standards of reasonableness and enforcing a duty to resolve ambiguity where one of the parties is under such a duty. INCOMPLETENESS A contract will be deemed ‘void’ if one of its vital parts have been left out. However, it must be noted that if one or both of the parties have stipulated a manner in which incompleteness can be overcome, the contract will still be valid.
For example, the fixing of the rent for a house may be left to a nominated third party if the two members of an agreement cannot make a decision. Thus, if the parties express the price to be as ‘that which is reasonable’, the contract is seen as being incomplete and thus void, because an appropriate price has not been fixed. However, the parties may have stipulated a mechanism by which the price can be calculated, which enables the operation of the contract. N. B: S.
13 of the ‘Victorian Goods Act’ which states that in a contract for the sale of goods, if the price has been omitted or has not been fixed for those goods, the price will be that which is considered ‘reasonable’. AGREEMENTS TO AGREE AND AGREEMENTS TO NEGOTIATE A contract will not have been formed if: Parties agree to reach a contract in the future. Courts will not enforce this as a valid agreement, simply because it is too vague Parties agree to enter into negotiations in the future. This is also unenforceable. However:
Although agreements to negotiate are unenforceable, ‘lock-out’ agreements are binding, those agreements that stipulate not to deal with a third person for a specified time. NB: If the part of the agreement that has been left out is considered to be unimportant and can be SEVERED from the rest of the contract, the remaining clauses will be ENFORCEABLE. If it cannot be separated, the whole agreement is unenforceable. CONDITIONAL CONTRACTS Basic definition: A contract whose performance depends on a fact or event that affects legal relations8.
If a party does not wish to be bound by the terms in a contract immediately, they can make the contract they are entering into conditional in some way, qualifying or suspending their obligations until the condition they have predetermined has been fulfilled. For example: A person may wish to buy a house, but first must obtain the satisfactory finance. Therefore, a clause will be included in the contract that states that the contract is ‘subject to finance’. Thus, the contract will only become unconditionally binding when the purchaser has the required funds.
If he/she cannot produce the finance by the date stipulated, the parties will not be bound by the contract, unless they waive the ‘subject to finance’ condition. Condition precedent: Is a condition that may be stipulated in a contract, which, if fulfilled by the specific party it relates to, will render the contract operative and binding. Eg. Buying a house subject to finance or buying a car subject to RACV inspection.
Condition subsequent: On the other hand, a condition subsequent will end the contractual rights and obligations of parties if its terms and stipulations are not fulfilled. NB. Condition precedents and condition subsequent may relate to the whole contract, or only some of its provisions. ‘Subject to contract’ clauses: The High Court has set out 3 different scenarios that can occur when an agreement is said to be ‘subject to formal contract’: The parties might intend to be bound immediately, though they express their desire to record their agreement in a formal way.
The parties intend to be bound immediately, but may wish the operation of a particular clause or term to be delayed or deferred, pending the drawing up of a formal contract. Eg. Negotiating the price of a car upon the drawing up of a formal contract. If parties intend to postpone the creation of formal contractual relations until a contract is drawn up. In order to decide whether/which of the above scenarios apply, one must observe the parties conduct and language as determined by a reasonable person, to ascertain that intention.
‘Subject to finance’ clauses: Are conditions that are sometimes inserted into a contract, usually for the benefit of the purchaser. This then makes the offer subject to the purchasers confirming that they have raised finance within a certain period of time. In such a case, if the purchaser obtains the finance needed to acquire the property, the contracxt will become unconditionally binding. On the other hand, if the purchaser is not able to do this within the time stipulated, the parties will cease to be bound by the contract unless they waive the subject to finance clause.
Pg’s 48 & 49 of Companion. CONSIDERATION General Statement: The doctrine of consideration is commonly defined as a promise for a promise, and may involve a benefit to the promisor or a detriment to the promisee. 9 Along with an intention to create legal relations, consideration is the primary mechanism by which the common law determines which promises are enforceable and which promises are not. The common law will only enforce a promise for which a price is paid (Dunlop Pneumatic Tyre Co v Selfridge & Co). The price for an offer/ promise! More information:
Consideration is often referred to in terms of benefit and detriment- consideration being described as something that is of benefit to the promisor (because the promisor receives something- personally or through being able to direct the benefit to a third person) or a detriment to the promisee (because the promisee parts with something of value)10 EXCEPTIONS TO THE RULE OF CONSIDERATION Two exceptions to the rule of consideration exist: 1) If the promise is ‘under seal’ Also known as a ‘deed’, a promise under seal is one that is actually recorded in writing, signed and sealed by the promisor and ‘delivered’ to the promise in a legal sense.
The precise nature of a deed is set out in specific legislation, such as the Property Law Act 1958 (Vic). 2) If the doctrine of promissory estoppel applies Based on the principles of ‘equity’, promissory estoppel may allow certain promises to be enforced even though consideration has not been given. This will occur in circumstances when it would be ‘inequitable’ or ‘grossly unjust’ in the circumstances for the promisor to change his/ her mind regarding the promise already made. FORMS OF CONSIDERATION
Executed Consideration: Consideration that takes the form of actually performing an act, or refraining from doing so, as DISTINCT FROM PROMISING TO DO SO. Eg. John promises to pay Greg $1000 if Greg runs to Geelong. Thus, executed consideration is when the promise executes an act in response to the promise made. Executory Consideration: It is good consideration to promise to pay a price in the future. This is known as executory consideration. Past Consideration: If an act or undertaking predates the promise, or was performed independently from it, it will be considered past consideration and thus WILL NOT BE REGARDED AS GOOD CONSIDERATION.
This is because consideration must be given in response to a promise. PRINCIPLES REGARDING CONSIDERATION a. As long as it is not illegal or illusory, a promisor has the ability to stipulate anything he/she desires as consideration. For example, ‘an undertaking to perform a certain task, coupled with a right not to do so, or an exemption from liability if the task is not performed, will not amount to consideration’11 b. By no means does the consideration have to match the value of the promise or be an adequate payment for the promise involved; there may be a gross inequality between the ‘worth’ of the two.
However, consideration does have to have some type of ‘value’ in the eyes of the law. Case: Dunton v Dunton (Victorian Supreme Court 1892). c. It is good consideration to promise to pay a price in the future. This is known as executory consideration. d. Consideration must be given by the promisee, thus it must involve some type of detriment on their behalf. It is important to note however, that in the case of joint promises, it is quite sufficient for consideration to move from only one of them. e. There must be a connection between consideration and the promise which it is said to support.
f. There is a distinct difference between a ‘conditional gift’ and consideration. Case: Australian Woolen Mills v Australian Commonwealth (High Court 1954). g. Past consideration is generally not good consideration. Consideration must occur in response to the promise, that is, the promise must have been in existence before the act is done. Case: Roscorla v Thomas (1842). SPECIAL SITUATIONS The rule in Pinnel’s case: If A owes money to B, a payment by A of part of the amount owed, or an undertaking to do so, will not be good consideration for a promise by B not to claim the balance owed.
However, there are certain exceptions to this rule, outlined on pages 63 and 64 of the Companion. As the court stated: ‘Payment of a lesser sum on the day in satisfaction of a greater sum cannot be satisfaction for the whole debt’. Case: Foaks v Beer (1884). Performance of a contractual or public duty will not constitute good consideration. For example, if a policeman is offered $100 to find a specific watch that was stolen, he will not be entitled to the $100 reward unless he drops all other cases and goes out of his way to find the watch.
This is because a policeman already has a public duty to find stolen goods. If the promisee owes a contractual duty to a third party, performing or undertaking to perform that duty will be good consideration for the promisors promise. The compromise of a legal dispute or giving up a legal right can be consideration for a promise. For example, if A decides not to take proceedings against B to recover $100 which she believes B owes her, in return for B’s promise to pay $95 immediately, A’s decision will be good consideration for B’s promise. Case: Wigan v Edwards (1973) 47 ALJR 586 [CH 143 HPR 110].
THE DOCTRINE OF PROMISSORY ESTOPPEL Based on the principles of ‘equity’, promissory estoppel will allow a promise to be enforced even though the promisee has not provided consideration for that promise, and will operate when it would be inequitable or unconscionable for the promisor not to be held to the promise. More information: This doctrine can by no means be seen as a complete substitute for consideration. If a promisor was to go back on his/her word before the promisee has acted in some way to their detriment, the promisor cannot be estopped.
Moreover, even if the promisee has suffered some detriment due to their acting upon a promise, a promisor may still be able to go back on their word, as far as the future is concerned, where it is possible for the parties to resume their original position. Where it is not possible for the parties to resume their original positions, the estoppel may operate permanently. To understand the nature of this doctrine, it is absolutely essential to know the case: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 [CH 148; HPR 219].
FACTS: Maher owned land in country NSW, and on this land there was a building Waltons stores wanted to expand into the country area, and were interested in leasing Maher’s land. Parties began to negotiate on the terms of a lease (contract). At the same time, Waltons gave Maher plans and specifications as to the type of building Waltons wanted Maher to build on this land. This meant that Maher had to demolish the building on his land, and put up the building with Waltons specifications.
Negotiations reached a point where leases were about to be signed, and thus were quite advanced. In fact, the negotiations were so advanced that Maher began to demolish his building and began construction on the building Waltons has specified. Maher’s solicitors were told by Waltons solicitors that the lease would be signed within the next day. Maher continued to demolish and construct. Although Waltons knew what Maher was doing, they decided that they did not want to expand into country areas any more, and changed their mind without informing him. The lease was never signed.
Thus, Maher was able to able to use the doctrine of promissory estoppel as a ‘cause of action’ or a ‘sword’. The High Court held Waltons was liable, even though there had been no contract made, and were bound to accept the lease. For estoppel to apply in any circumstance, the following must be present: There must be a clear and unambiguous promise, undertaking or assurance made between two parties. The other party must then actually rely on that promise, undertaking or assurance, depending heavily on the notion that it would be honoured.
Due to the other party’s promise not being kept, the person who receives the promise must incur some detriment and be put in a worse situation because of the non compliance or withdrawal from the promise. Material damage must be suffered. The promisee must demonstrate that it would be uncontainable (not of good conscience) to allow the promisor to go back on their promise. Thus, there must be a great injustice or inequitable action on the promisors behalf, which the promisee can claim as being extremely unfair. REMEDIES AVAILABLE TO PROMISEE.
There are 2 main remedies the court may opt for when it has been decided that the doctrine of promisory estoppel applies: 1) The court may well prevent the promisor from withdrawing from the promise, and require them to fulfill the terms of the agreement made. 2) Alternatively, the court may award a certain amount of compensation or damages that are proportional to the damages suffered by the aggrieved party, depending on the severity of circumstances. INTENTION TO CREATE LEGAL RELATIONS Basic Principles: a. For a contract to be valid, parties must intend their agreement to have legal effect, as distinct from merely moral force.
b. This principle applies to all agreements, even those that have been supported by consideration. c. Hence, before a party can be sued for breach of contract, it must be shown that the parties intended legal consequences to flow and that it was intended that the agreement be enforceable in a court of law. d. Whether the parties to an agreement intended it to be a legally binding contract is determined objectively, as confirmed by a reasonable person. Both the language and circumstances surrounding the situation are closely scrutinized. DOMESTIC, FAMILY AND SOCIAL AGREEMENTS