Contract Week 1 What is a contract? “…an agreement or set of promises that the law will enforce(ie for breach of which the law will provide a remedy)” Nature of contract - Parties create own obligations Contract is everyday occurrence in life Underlies almost all commercial and economic activities Foundation for all commercial law Underlying themes - Freedom of contract Economic/commercial efficiency Objective approach Fairness – the law abhors certain types of conduct (deception, coercion, unconscionability) in contracting Contract law: Determine existence and content of binding promises and their enforcement of defeasibility in a market economy, involves consideration of underlying policy considerations. Elements of formation Offer Acceptance Consideration Certainty Intention Matters affecting formation Privity Formalities Capacity Domestic contract law (common law subject) Other ares of case law affecting contract - Enforcement of promise by way of estoppel - Restitution for unjust enrichment Legislation affecting contracts - Australian Consumer Law (ACL) Contract A - Unfair contract terms - Consumer guarentees Other statutes - Goods Act 1958 Vic International contract laws - UNIDROIT Principles of international commercial contracts 2016- Non-bionding UN Convention on contracts for the international sale of goods 1980- Binding uniform rules Is there a contract - An agreement between the parties (often expressed as ‘offer’ and “acceptance”) - Consideration(each party must give something in return for the rothers promise) - Intention to create legal relations between parties - The agreement must be complete and certain (no doubt to each parties obligations ) Other aspects - Certain formalities required for some types of contract A party must have capacity to contract to be bound Privity – only parties to the contract are bound OFFER What is offer - Role in contract formation Definition - manifestation of willingness, vcertaint, objective A mere “puff”? In ticket cases (wk 2) Offers distinguished from an “invitation to treat” - Shop sales Online sales Auctions Tenders Termination of offer - revocation Lapse an death of offerer Failure of a condition and changed circumstances Rejection and counter offer Agreement - Traditional approach to establiushing agreement is through offer and acceptance - Offer made by one party the offerer - Offer accepted by other party the offeree - Agreement occurs when acceptance is communicated by the offeree to the offeror - But there are limits to this approach and there mayb be agreement without offer - and acceptance Note may be agreement without offer and acceptance Bilateral and unilateral contracts Bilateral - Most contracts - 2 parties to the contract - Both parties exchange a promise or set of promises for each to do something in - the future (e.g A Promises to transfer ownership of his car to B. In return B promises to pay $) Both A and B promises are executory (ie to be performed at some point after the contract Is formed) Unilateral - - Typically reward scenarios 2 parties to the contract Only 1 promise is made (A promises to pay B if B finds lost item) B accepts As offer when B performs the stipulated task. Contract is formed at time B Perform her obligations under it ( no need to give notice of acceptance prior to performance.) At time contract formed, As obligation/promise is executory and Bs obligation has been executed(ie already performed).. E.g Carlill v Carbolic smoke Ball; Mobil Oil v Wellcome Defiition of offer “an offer may be described as the indication by one person ( the offeror) to another (the offeree) of a willingness to contract on certain (disclosed ) terms” (Australian Woollen Mills v Cth) “an offer is an expression of willingness to enter into a contract on specified terms. A proposal only amounts to an offer if the person making it indicates that an acceptance is invited and will conclude the agreement between the parties”. Legal significance of an offer “an offer does not, in itself, give rise to any obligation: its legal significance is the creation in the offeree of a power subsequently to create a contract by unilateral action, that is, by acceptance of the offer.” Offer – an objective test Questions: - What type of manisfestation (statement or conduct) constitutes an offer? What if the offeror’s outward manifestation is different from his or her actual intentions Answer: - The courts use objective standard, i.e. the view of a reasonable person in the offeree’s position Gibson v Manchester Council (1979 HL) Facts: - Council letter to Gibson (tenant of council housing) Issue: - Was this an offer to sell for 2,180 pounds Held: - Tril judge – for Gibson Court of appeal – for Gibson Denning: “look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have come to agreement on everything that was material” (Departed from conventional approach of offer and acceptance) HOL: for council unanimous – Lord Diplock - - No reason here to depart from conventional approach of construing the documents to identify a clear offer and acceprtance (though refers to the possibility of exceptional types of contracts “which do not fit easily into the normal analysis of offer and acceptance”. “may be prepared to sell” and request for “formal application” were fatal and make it impossible to construe this letter as a firm contractual offer Objective test played out Carlill v Carbolic Smoke Ball (1893 UK CA) Advert in Pall Mall Gazette, 1891 Facts: - Mrs Carlill used smoke ball as directed for four weeks Contracted flu Claimed 100 pound reward Carbolic refused ot pay Mrs Carlill sued for breach of contract No offer made – 3 Arguments - - Advert was not a promise (or offer); was mere puff Held: Objective test: would it appear to a reasonable member of the public that an offer was intended? Clearly an offer; not a puff (why else the 100 pound deposit) No ffer can be made to world at large Held: it is possible to make offer to the public large (hjas precedent) Too vague and uncertain to be an offer – no time limit: Held: advert was not too vague or uncertain: time limit would be reference to a reasonable time Carbolic CO argued there was no contract - Mrs Carlill did not communicate acceptance Held: accepaance occurs be performance. Acceptance need not be notified - before performance. No consideration moved from Mrs Carlill Held: consideration was: - Advantage to Carbolic gained by use of ball to promote sales Detriment to Carlill in her inconvenience in using the ball Offer: offer distinguished from invitation to treat objective required Invitations to treat • An invitation to treat is an invitation to others to make an offer or enter into negotiations. Not an offer because lacks sufficient indication of willingness to be bound. Typical categories: • Most advertisements (eg catalogues) • (but note non contractual implications – eg misleading and deceptive conduct– Contract B) • • • • Goods displayed in shops (Boots) Goods offered for sale online (Electronic Transactions Act s14B) Property declared “on the market” at auctions (AGC v McWhirter) Requests for to tenders (Harvela, Hughes Aircraft) Invitation to treat: goods displayed in shops Pharmaceutical Society v Boots Chemist (1953 UKCA) Facts/ issues: • • • Pharmacy and Poisons Act made it illegal to sell drugs except under supervision of a registered pharmacist. Pharmacists were present at check-out. Was having the goods on the shelf an offer capable of acceptance by taking them off the shelf? If so, Boots would have been in breach of the legislation. Held: • • • • • The goods being displayed on the shelves was an invitation to treat Customers make an offer to buy the goods at the checkout Pharmacists could either accept or reject the offer Boots therefore not in breach of the legislation Why? – It would be unworkable to say that taking the goods off the shelf was an acceptance of an offer, because it implies that the customer could not have a change of mind and return the goods to the shelf before paying for them Invitation to treat: goods offered for sale online Online proposals: Electronic Transactions (Victoria) Act 2000 14B. Invitation to treat regarding contracts 1) A proposal to form a contract made through one or more electronic communications that: a) is not addressed to one or more specific parties; and b) is generally accessible to parties making use of information systems is to be considered as an invitation to make offers, unless it clearly indicates the intention of the party making the proposal to be bound in case of acceptance. 1) Subsection (1) extends to proposals that make use of interactive applications for the placement of orders through information systems. What does it mean? Goods or services offered online generally to be treated as an invitation to treat (unless clear intention to be bound by acceptance). Invitation to treat: public auctions General rule is that: – – – – – – – – the auction is an invitation to treat; the bid is the offer; and the offer is accepted by the auctioneer’s “fall of the hammer”. The general rule is said to apply even when the auctioneer says a property is “on the market”, or advertised for auction “without reserve” AGC v McWhirter (1977 NSWSC) This means that: the seller can withdraw the property before acceptance of a bid; the seller can refuse to accept a bid (doesn’t have to sell to the highest bidder); and the buyer can withdraw a bid before acceptance. Auctions – AGC v McWhirter (1977 NSWSC) Mortgagee auction - vendor (mortgagee) rejected highest bid from mortgagor. Held: Vendor had not made an offer to sell despite auctioneer declaring that property was “on the market”. Tenders – What are they? • • • A prospective purchaser of goods or services will often assess potential suppliers through a tender process. The suppliers effectively bid for the work through submitting a tender. Often used for the sale of commercial or residential property Often used by governments contracting - an example from the Australian government’s tenders website: Invitation to treat: request for tenders • The general rule is: – request for tenders is an invitation to treat; – tender from interested supplier is the offer – But, there are exceptions – Sometimes the call for tenders may be an offer: Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] – Sometimes the call for tenders will create a contract re: tender process Hughes Aircraft Systems International v Airservices Australia (1997) Harvela Investments v Royal Trust Co (1986 HL) Facts: • • • Royal Trust sent telex to two other shareholders “inviting” them to make a “single offer” for its shares in A Harvey & Co Ltd “if any offer made by you is the highest offer received we bind ourselves to accept... provided [it] complies with the terms...’ Harvela submitted an offer of $2,175,000 • Outerbridge’s offer was for “$2,100,000, or $101,000 in excess of any other offer” Held: • • The “invitation” telex was an offer Harvela accepted the offer by making the highest fixed price bid (Outerbridge’s “referential bid” did not contain the highest fixed price bid) Became an offer as they bound themselves Hughes Aircraft Systems v Airservices Australia 1997 FC Facts • Hughes unsuccessfully submitted tender for air traffic control services – claimed that tendering process was not complied with. Held - Finn J (read pp 183-187) • There were 2 valid tender process contracts governing the tender process. – CAA letter describing tender process and evaluation criteria (offer: not invitation to treat) – accepted by Hughes signing – Formal request for tenders with similar terms (offer), accepted by Hughes lodging its tender • CAA was in breach of contract: – failing to evaluate tenders in accordance with criteria – Confidentiality not enforced – Accepted late change by other tenderer • Based on the particular facts of this case (We look at this case again in Week 10 (Implied Terms) – duty of good faith) CISG: offers and invitations to treat – Article 14 • • (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. Offer: termination of offer How is an offer terminated? • • • Revocation of offer by offeror Lapse of time: if no time prescribed after a reasonable time Death of offeror/ offeree Failure of a condition • Rejection by offeree: rejection must be communicated Termination of offer - revocation Withdrawal or revocation • • • • Can occur at any time before acceptance, (even if the offeror promised to keep it open) – Dickinson v Dodds By words or action inconsistent with continuance of offer - Dodds. Effective when it reaches (i.e. communicated to) the offeree (by offeror or some other reasonably reliable source) - Dodds Offers to the public at large can be revoked in the same way (or other way with same coverage) that the offer was made (eg. in newspaper). Exceptions: • • • If consideration has been paid to keep the offer open – options - Goldsborough Mort If a unilateral contract, performance has commenced, and there is an implied contract not to revoke or an estoppel – Mobil Oil If there is a promise to hold an offer open that is subject to the CISG (Article 16). Revocation of offer: Dickinson v Dodds (1876 UKCA) • 10 June: Dodds made an offer to sell land to Dickinson (to be left open until 9am on 12 June). • 11 June: Dodds sold the land to Allan. • Evening of 11 June: Dickinson’s agent, Berry, told Dickinson about Dodd’s sale to Allan. • Before 9am on 12 June: Dickinson accepted Dodd’s offer. • Issue: Was there a binding contract? • Held: Dodds revoked the offer by selling the land to someone else. This revocation had been communicated to Dickinson before acceptance (Berry was a reasonably reliable source). There was no contract. Consider: Would there have been a contract if Dickinson hadn’t known about Dodd’s sale to Allan? Yes revocation ineffective R evocation: options • A promise to hold an offer open is binding at common law if consideration has been given in return for that promise. – Goldsbrough Mort v Quinn (1910 HCA) • (This is an exception to the general rule that an offer can be revoked any time prior to acceptance.) Goldsbrough Mort v Quinn (1910 HCA) • • • Goldsbrough paid 5 shillings for the right to purchase land at Bena Billa for 30s per acre “calculated on a freehold basis” within a week. Quinn purported to revoke the offer. Goldsbrough accepted within the week and sought specific performance (ie the land). Held: Here, the offeree paid for the option to have one week to consider the offer. It was held that the offeror could not withdraw before the expiration of the promised period. The Judges analysed the arrangement in different ways: Griffith CJ/ O’Connor J - conditional contract – There was a contract to sell the land subject to a condition (ie exercise of the option). Isaacs J – 2 separate contracts – There were two separate contracts: • option was a preliminary contract to hold the offer open (ie an offer with a promise not to withdraw); and • the exercise of the option created a second contract to sell the land. On either analysis: An option contract (a promise to keep an offer open, for value) is binding, and specific performance can be given. Revocation of offer: unilateral contracts • There is no universal rule that a unilateral offer cannot be revoked before acceptance (even where offeree has begun performance). Generally, a unilateral offer can be revoked before acceptance, however a remedy may be available under: – an implied contract not to revoke – estoppel (week 7) Mobil Oil v Wellcome Mobil Oil v Wellcome Intl Pty Ltd (FFC 1998) • • • Announcement by Mobil to franchisees that if scored >90% in Circle of Excellence program for 6 years - entitled to 9 free extra years on franchise Plaintiff proceeded to get such scores but offer revoked after 4 years and program cancelled 5 franchisees commenced action against Mobil Oil as test case (over 150 affected) Trial J (Wilcox): • Unilateral contract offer cannot be revoked once performance has commenced. Held FFC: • No offer - statement too vague and uncertain to be a contractual obligation • Even if it were an offer, Mobil entitled to revoke unilateral offer although performance had commenced. • There is no general proposition that an offeror can’t revoke the offer once the offeree commences performance. Held FFC cont: • But there may be times where there is an implied ancillary contract not to revoke the offer once the offeree commences performance (an implied promise not to revoke given in return for consideration of commencing performance) - in which case revocation is still effective and offeror is liable to pay damages for breach of ancillary contract. • Consider particular circumstances: – Does the offeror know the offeree has commenced performance? – Does the offeree understand that incomplete performance is at their own risk? – Did the parties intend that the offeror should be able to revoke the offer? – Is the performance beneficial or detrimental to the offeree? Held FFC cont: • No such implied ancillary contract here because: • “commencing” performance is too vague – after one day? • the franchisees did not suffer any substantial detriment • the franchisees were already bound to adhere to Mobil franchisee standards [We look at this case again in Week 7 – Estoppel] Revocation of offer: CISG Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. • Similar provision in Article 2.1.4 of UPICC. Termination of offer: lapse of time • • Offer may be open for specified period – will lapse at end of specified time If no period specified – will lapse after a “reasonable time” – What is “reasonable” will depend on the context – apply objective test Termination of offer: death • Offer will lapse on death of offeror (where offeree knows of the death) – Fong v Cilli (1968) 11 FLR 495 (NT SC) • Vendor died before one of the purchasers signed. The remaining purchaser had notice of the death. Offer lapsed. • Implication that an offer may still be accepted before notice unless personal services required. • No clear authority as to whether an offer will lapse on death of offeror when offeree doesn’t know about the death (depends on the parties’ intentions and the circumstances). • Option contracts remain enforceable against deceased estate unless: – Personal services of deceased required; or – Intent of option was that it not be exercisable after death • Laybutt v Amoco Australia Pty Ltd (1974 HCA) No clear authority as to whether an offer will lapse on death of offeree, however it seems that an offer would generally lapse on death of offeree (however, depends on the parties’ intentions and the circumstances Termination of offer: failure of condition and changed circumstances • • Express condition: The offeror may stipulate circumstances in which an offer will stay open or lapse, or which must be satisfied before an offer can be accepted (eg offer subject to board approval) Implied condition: If the offeror does not do so expressly, it may still be obvious to an objective observer that the offer was made on the basis of certain circumstances. It may be that if these circumstances change, that the offer lapses. – Eg Financings Ltd v Stimson (1962 UKCA) – offer to purchase car subject to implied condition that car remain in same condition – unable to be accepted after car stolen and damaged. Termination of offer: rejection & counter offer • • • • Once an offer has been rejected it is no longer available for acceptance A counter offer (eg “I’ll give you $X instead”) is treated as a rejection. A “mere inquiry” is distinguished from a counter offer and not a rejection (eg – “is there room for movement on the price?”, “would you accept $X?”) – Stevenson, Jaques & Co v McLean But - A rejected offer may in all the circumstances be treated as remaining open and available for acceptance on the basis of mutual assent manifested by conduct (per Heydon J, Brambles) Stevenson, Jaques & Co v McLean (1880 UK) Facts: • McLean offered to sell iron to Stevenson, Jaques & Co for 40s per ton, offer open till Monday. • 9.42am Monday Stevenson Jaques & Co telegraphed: “please wire whether you would accept forty for delivery over two months, or if not, longest limit you could give”. Issue: Was this a rejection of the offer? • McLean didn’t answer and sold the iron to someone else. • Stevenson, Jaques & Co sent a telegram accepting the offer. Issue: Was there a binding contract to sell iron? Held: • Not a rejection of the offer; not a counter-offer but a mere inquiry. The offer could have been revoked (but wasn’t) so it was still open and was accepted. There was a binding contract.
