Contract Law Notes Elements of a Contract: Offer Acceptance Consideration Intention to be legally bound Mutuality Capacity Legality

Offer: Offer is a promise to do, or refrain from doing, something (usually) upon condition that the other party (the offeree) agrees to do or refrain from doing something else. Offers can be made to: one person or an identified group of people; or the world at large. Invitations to treat are statements made to others inviting them to make you an offer. Examples of invitations to treat are: - Advertisements and circulars - Display of goods in shops - Calls for bids at auctions - Calls for tenders Puffs are obviously far-fetched statements made to induce a contract but not intended to form part of a contractual obligation Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [Eng] - Chemists stocked a drug which needed to be sold under supervision. - [Offer] The display of goods in a retail store is not an offer to sell at the price stated even if goods are being sold on a self-serve basis; rather an invitation to treat. - If the display of goods on the shelves constituted an offer then the picking up of those goods would be an acceptance. A customer would then be entering into a legally binding contract of purchase when they picked the goods up. The customer could not therefore put the goods back if they discovered that they had insufficient money or if they changed their mind or found something else that they preferred. This is clearly inconvenient. Carlill v Carbolic Smoke Ball Company [Eng] - 100 reward will be paidto any person who contractscold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 is deposited with the Alliance Bank, Regent St, showing our sincerity in the matter. - [Offer] More than mere puff, bank deposit a sign of sincerity and intention. - [Offer] Contracts can be offered to whole world or limited group. - [Acceptance] Notification of acceptance waived due to the way the language was framed.

[Consideration] Using the smoke balls was an inconvenience suffered at the request of the company, sufficient to constitute consideration. Any act of [Mrs Carlill] from which the [Company] derives a benefit or advantage, or any detriment, or inconvenience sustained by [Mrs Carlill], provided such act is performed or inconvenience sustained by [Mrs Carlill], with the consent, either express or implied, of the [Company]. Catching the cold, on the other hand, was a condition precedent to entitlement not consideration.

Australian Woollen Mills Pty Ltd v Cth - Australian Government made a policy of a wool subsidy which then ended. Mills sued for subsidies it felt due. - [Offer] Not an offer as: It is of the essence of contract that there is a voluntary assumption of a legally enforceable duty. it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. - [Consideration] There was no consideration as it needs to be quid pro quo - the statement and act referred to must exist in a clear relationship to each other. The doing of the act must be based upon the promise (the price) - not merely coinciding with it. Acceptance: An acceptance is a final and unqualified assent to the terms of an offer made in the manner specified or indicated by the offeror - Who may accept? Only those persons o to whom the offer is made; and o who have the offer in mind at the point of acceptance - What can be accepted? o what was offered (without any additions, deletions or conditions) - Acceptance generally must be communicated to be effective - Such communication may be by words or actions - Silence cannot be stipulated as the required means of acceptance - An offeror can waive his or her right to communication of acceptance - The offeror can require acceptance to be in a prescribed manner An acceptance can be revoked provided the revocation comes to the offerors attention before he or she receives the acceptance. Options are an exception to this rule. - Two theories about options: o An option is an irrevocable offer that may be accepted at any time during the specified period. o An option is a conditional contract, usually of sale or lease.

Postal Rule of Acceptance: Where acceptance by mail or telegram is contemplated by the parties, the acceptance will be complete when the letter is posted or the telegram is sent - Does not apply where: o the parties dealings were protracted and contentious o it would produce manifest inconvenience or absurdity; or o the offeror expressly requires actual communication of acceptance Felthouse v Bindley [Eng]

Felthouse offered to buy a particular horse from his nephew and stated (in a written offer) that if I hear no more about him, I consider the horse mine at 30 15s. His nephew did not reply but instructed the auctioneer not to sell the horse. He mistakenly sold the horse. Felthouse sued the auctioneer for conversion. [Acceptance] There was no communication of acceptance; silence is not acceptance.

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd - Empirnall engaged MP to redevelop a site it owned. After work commenced MP submitted a written contract to Empirnall. Empirnall never signed the document, but MP continued to carry out work and E continued to make payments in accordance with the document. - [Acceptance] As (1) MP did the work on the stated belief it was done pursuant to the contract (2) Empirnall clearly revcieved benefit from the work and (3) payments were made in the manner of the provided contract there was acceptance. where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms. Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [Eng] - The offeror, Brinkibon (London, England) wanted to sue the offeree, Stahag (Vienna, Austria) for breach of contract. Acceptance by Brinkibons of Stahags counter-offer had been by way of telex from London to Austria. Thus there was an issue of legal jurisdiction. - [Acceptance] The postal acceptance rule (the time of contract will be the time that the letter is put into the mail) does not apply, rather formation occurs on receipt (Austria). R v Clarke - The Crown offered a monetary reward for information leading to the arrest and conviction of people responsible for murder. Clarke was arrested in connection with the murders and made a statement to police about the murders which led to the conviction of other men. - [Acceptance] Clarke gave information to secure his own release and not given in exchange for the offer. Thus, no contract. Duration of Offers: Dickinson v Dodds - On 10 June Dodds offered to sell house to Dickinson, stating this offer to remain open until 9.00am on 12 June". Dickinson decided to accept on 11 June but did not adivse Dodds immediately. Later on the 11th Dickinson was informed by a third party that Dodds had sold to someone else. Dickinson then purported to accept the offer. Dodds replied that it was too late - the property had already been sold. - [Revocation] Offers may be revoked at any time prior to acceptance even if the offer states a definite time period which has not expired. - [Revocation] Revocation must be communicated (though not necessarily by the offeror). In this case, the communicator was judged to have been enough to make Dickinson reliably informed. Goldsborough Mark & Co Ltd v Quinn

A financial option was sold. Can the option be revoked? [Revocation] No.

Uncertainty and Incompleteness: Illusory contract: where there has been no real agreement between the parties or where there is no real agreement because one of the parties has unfettered discretion in the contract. Uncertain contract: where a contract has terms but those terms may not be able to be given any actual meaning by the courts. Incomplete contract: where the parties may be in agreement about their desire to be in a contract but where they may have failed to agree upon or left out some important or material terms to the contract. Consequences: - Contract is void if a provision that is essential to the contract (eg the commencement date for a lease) is incomplete, illusory or uncertain. - Contract remains valid if the provision is not essential and the courts determine that the parties intended for the contract to remain valid. The offending provision is then severed from the contract. Whitlock v Brew - Whitlock sold a piece of land to Brew who paid a deposit. The contract contained a provision the purchaser would enter into a lease with a third party "upon such reasonable terms as commonly govern such a lease". Brew changed his mind and asked for his deposit back on the ground no concluded bargain had been reached. - [Uncertainty] Contract uncertain as two essential terms of a lease (rent and duration) were not stated. - Uncertainty could not be fixed by arbitration there were no terms for the arbitrator to arbitrate on. - [Severance] Contract void because condition not severable it was a fundamental part of the agreement that the purchaser would lease the specified land to the third party. Biotechnology Australia Pty Ltd v Pace - Pace entered into an employment contract with Biotechnology which provided that he would have the option to participate in the company's senior staff equity sharing scheme. There was no such scheme in existence at the time of contract or at any time during Paces employment. Pace sued for breach of contract. Issue of whether the term was illusory or uncertain. - On the one hand there is the natural desire of courts to uphold, and not to frustrate, a contract between the parties. On the other hand is the unwillingness of courts to uphold contractual terms which are unacceptably ambiguous or uncertain. - [Uncertainty/Illusory] It depended entirely on the decision of one of the parties (Biotech) to provide an equity scheme and there was no 'external standard' the court could use to try and resolve the ambiguity. Even if the term was not illusory it was uncertain how many shares, what class of shares, what options would exist, what rights would attach? The term was, therefore, unenforceable. - In attempting to uphold the agreement that the parties have made, relevant matters include:

o If meaning of a provision in a contract is to be settled by an identified third party (arbitrator); o If an essential term is left to be determined by one party; o If there is an external standard that can be applied; o Where a contract term provides a range a possibilities then the court will hold the party to the minimum obligation. Coal Cliff Collieries Pty Ltd v Siejehama Pty Ltd - Parties entered into a heads of agreement to jointly develop mining rights. The agreement anticipated execution of a joint venture in the future. However, they failed to reach final agreement and a few years later negotiations were terminated. Sijehama alleged breach of heads of agreement and claimed damages. - [Uncertainty] While the clause in this case was too vague to be enforced, Australian law will recognises an agreement to negotiate in good faith provided there is consideration for the promise and depending upon its precise terms. Council of the Upper Hunter County District v Australian Chilling and Freezing Co. - Council entered into a contract to supply ACF electricity. Clause 5 stated "if the Supplier's costs shall vary in other respects than has been hereinbefore provided the Supplier shall have the right to vary the maximum demand charge and energy charge ...". Council sought to increase its charges, but ACF alleged the clause was void for uncertainty, placing reliance on the term suppliers costs. - [Uncertainty] A contract is not automatically void for uncertainty just because it may be construed in more than one way: As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it.' Consideration: Consideration can take the form of either: a benefit to the promisor; or a detriment to the promisee incurred at the promisors request Consideration may be executory, executed but not past Consideration will be executed if: the act was done at the promisors request it was understood by the parties that it would be paid for; and the payment would have been legally recoverable if it had been promised in advance Consideration must be something of value in the eyes of the law That is it needs to be sufficient but it does not need to be adequate

Past consideration is an attempt to use a promise that has already been made or an action that has been already performed as consideration for a future promise. It is not contractually enforceable. Consideration will be considered to be illusory where it consists of promises that appear to be discretionary.

The general rule is that the performance of existing duties is not good consideration. Forbearance to sue can be good consideration if the original claim was reasonable and neither vexatious nor frivolous; the plaintiff honestly believed in his or her chances of success; and the plaintiff did not conceal from the defendant any fact which could have affected the validity of his or her claim Acts or forbearance in either performance or discharge of an existing obligation do not generally constitute good consideration See Australian Woollen Mills under Offer. Beaton v McDivitt - The McDivitt promised to transfer a portion of his land to the Beaton when a proposed rezoning occurred if, in the meantime, the appellant worked the land in a specified way. Beaton moved onto the land and worked it as required (inc. building a house). Seven years later a dispute arose and Beaton was ordered off the land. - [Consideration] The bargain theory of consideration applies in Australia (amounting to a rejection of the reliance theory); in particular, that theory requires a quid pro quo between the parties. In this case there was such consideration consideration for the promise to transfer was the act of Beaton in coming and working on the block as requested. This constituted a detriment suffered by Beaton and that is sufficient for consideration. - Contract was, however, frustrated. Notes in Woolworths v Kelly on why adequacy of consideration is not considered: - In the marketplace the parties place different values upon the bargain which they are getting. - Judges are lawyers and not economists. A judge is not expert enough to substitute his opinion about the wisdom of a bargain achieved by the parties. - Floodgates - every contract in the land would be litigated over the adequacy of the consideration. - Law needs to provide certainty - any uncertainty about the enforceability of bargains needs to be minimised. - Adequacy of consideration may be challenged on other grounds - ie - no intention to enter into a legal relationship. - Freedom of contract- parties are free to make bad bargains. Coulls v Bagots Executor and Trustee Co Ltd - Arthur Coulls entered into a contract in which ONeil Constructions Pty Ltd paid royalties for quarrying right. The agreement was signed by Coulls and his wife, but the wife did not provide any consideration. Coulls then died. - [Consideration] The royalties were revoked on death. Consideration must move from the promise (but not necessarily to the promisor). Chappell & Co Ltd v Nestle & Co Ltd [Eng] - To promote chocolate sales, Nestle advertised it would supply a record to anyone who sent it money and three chocolate wrappers. Chappell & Co held the copyright for one

of the records and demanded royalties. Nestle offered 6.5%, however there remained a dispute over the how to deal with the wrappers. [Consideration] Consideration need only be legally sufficient, not necessarily adequate.

Roscorla v Thomas [Eng] - P purchased a horse from D. D then promised the horse was sound. The horse was in fact not sound and P sued for breach of contract. - [Consideration] Past consideration is not consideration; promise not enforceable. The contract had already been formed between the parties and the second promise was not supported by consideration because it was given after the first contract. Re Caseys Patents; Stewart v Casey [Eng] - The holders of letters patent employed Casey to promote their invention in the commercial world. Afterwards, they undertook in a letter, "in consideration of his services as manager in working the patents" to give him A one third share of the patents. Later, the other patent holders attempted to have his name removed from the Register of Patents. - [Consideration] Past consideration, NB: Iffy. The correct approach is to look at the document and see if it cannot receive a proper effect. A past service raises an implication at the time it was rendered, that it was to be paid for. When subsequently there is evidence of a promise to pay, that may be seen as an admission which fixes the amount of the bargain, on the basis of which the service was rendered. Meehan v Jones - Whether the sale of land subject to the purchaser obtaining finance on satisfactory terms and conditions was illusory consideration. - [Consideration] Gibbs CJ regarded the clause as a condition on whose fulfilment the obligation to complete the contract depended analogous with an option and therefore enforceable. The determination of satisfactory finance is a subjective one with an implied requirement that the purchaser will act honestly in making an assessment. Glasbrook v Glamorgan County Council - Glasbrook promised to pay Council for special police protection during a strike (after requesting police protection and being refused). The protection Glasbrook received was more than the police thought necessary. Glasbrook refused to pay and Council sued. - [Consideration] If individuals require services of a special kind, not within their obligations, then a promise to pay for these will be enforced. Consideration for existing legal duties will not be enforced. Popiw v Popiw - Helga Popiw left her husband and, in an effort to entice her back, her husband orally promised that if she returned he would put the title to the home in their joint names. Helga returned and left after a dispute. - [Consideration] Even if it could be said that Helga was under a duty to cohabit with the respondent there was no remedy in law which would compel her to do so. Thus, in exchange for his promise the husband, from a practical viewpoint, obtained something more advantageous than the right of cohabiting with his wife which he could not enforce; Helga suffered a detriment by placing herself in apposition which she could not have been compelled to occupy there was good consideration.

Foakes v Beer - Beer obtained a judgment against Foakes for a debt owed and costs in 1875. Over a year later the parties entered into an agreement to the effect that in consideration of Foakes paying Beer $500 in part satisfaction of the judgment debt and on condition that the balance be paid in installments, Beer would not take proceedings on the judgment. In 1882 Beer took proceedings to enforce the judgment so as to recover interest on the judgment debt. It was established that the whole debt had now been paid off. - [Consideration] Part payment of a debt is not consideration for a promise to discharge the debt. The doctrine of Pinnels case is that payment of a lesser sum on the day cannot be satisfaction for the whole sum. i.e. payment of a lesser sum on the day cannot be good consideration for a promise by the creditor not to claim the rest of the money due. Williams v Roffey Bros & Nicholls (Contractors) Ltd - Slides Musumeci v Winadell Pty Ltd - Slides Wigan v Edwards - Edwards purchased a new house from Wigan. The contract did not contain any promise that the house was in a good condition etc. The house was defective in certain ways and E said that they would not settle unless these were attended to. Wigan promised to attend to certain problems but did not. - [Consideration] If the promisor genuinely believes that he is not bound to carry out his promise under the existing contract or that he has a right of action under the existing contract, then a promise to give up his or her right to sue or not perform will be considered good consideration. Intention to Create Legal Relations: With purely social or domestic agreements it is presumed that the parties did not intend to create a legally enforceable agreement, eg Balfour v Balfour. With business or commercial agreements it is presumed that they did so intend Balfour v Balfour - [Intention] With purely social or domestic agreements it is presumed that the parties did not intend to create a legally enforceable agreement Rose and Frank Co v JR Crompton & Bros Ltd - The term This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement and shall not be subject to legal jurisdiction in the Law Courts either of the United States or England was sufficient. - [Intention] Presumption of intention to contract due to commercial situation rebutted. Masters v Cameron - Terms of contract included: [t]his agreement is made subject to the preparation of a formal contract of sale. - Three classes of contract:

o [Enforceable] The parties had reached finality in their negotiations and intended to be immediately bound by their agreement but wanted the terms to be set out in a more precise but not materially different form. Parties agree to be immediately bound. o [Enforceable] The parties had reached finality in their negotiations and intended no departure from their agreement but made performance of the contract conditional upon the execution of a formal document. Parties are immediately bound but neither party can demand performance until the formal document is executed. Each party can demand that the other do all that is necessary to bring the formal document into existence. o [Unenforceable] The parties did not intend to make a concluded bargain unless or until a formal contract was drawn up. Writing Requirements: The Statute of Frauds stipulates that certain contracts must be evidenced in writing. The only type of contract to which the Statute of Frauds requirement continues to apply in all jurisdictions is a contract with respect to land eg sales, leases, mortgages, the creation of easements and some other less usual interests in land. Non-compliance with a writing requirement renders a contract unenforceable. This means that a contract that does not comply with the writing requirement is still a contract in substance but it has a procedural defect. Pavey & Matthews Pty Ltd v Paul - What was the effect of a builders failure to comply with the writing requirement in s 45 of the Builders Licensing Act 1971 (NSW). - [Non-compliance with Writing] The High Court found in favour of the builder, held that they were not enforcing the contract but, instead, were making an order for reasonable remuneration because the building work had been done at Mrs Paul's request and she had accepted the benefit of it. In this type of action the unenforceable contract does have a role. It proves that the work was done on a commercial basis and it may provide the basis for calculating how much is owed.