Law of Contract
Copyright Guy Harley 2004
Contract
 An agreement between two or more persons that will be
enforced by law
 May be
 In writing
 Oral
 Partly in writing and partly oral
 Contracts need not be in writing (some exceptions)
Copyright Guy Harley 2004
Analysing a Contract
Is there a contract?
What are the terms?
Is it valid & enforceable?
Has it been discharged?
Has there been a breach?
Copyright Guy Harley 2004
Six Elements
1. Offer
2. Acceptance
3. Intention to create a contract
4. Consideration
5. Contractual Capacity
6. Certainty
The elements are not always clear
Copyright Guy Harley 2004
Law of Contract
Offer
Copyright Guy Harley 2004
Offer
 Specific legal meaning
 An offer exists only where a reasonable person would
conclude on the facts that the person was willing to be
bound in a court of law
 Distinguish
 Indication of future conduct
 Invitation to treat
 Negotiations
Copyright Guy Harley 2004
Indication of Future Conduct
 A mere statement of a present intention to do something
in the future is not an offer
 Harvey v Facey (S&O p 70)
 Australian Woollen Mills v Commonwealth (S&O p70)
 Harris v Nickerson (S&O p71)
 Kelly v Caledonian Coal Co (S&O p71)
Copyright Guy Harley 2004
Invitation to Treat
 An invitation to
 Negotiate
 Make an offer
is not an offer but an “Invitation to Treat”
 The distinction lies in the objective intention of the
person making the offer or invitation to treat.
Copyright Guy Harley 2004
Invitation to Treat
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Retail Displays
Catalogues
Advertisements
Auctions
Tenders
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Retail Displays
 Fisher v Bell (S&O p72)
 Pharmaceutical Society v Boots (S&O p73)
 In most circumstances the retailer does not make an
offer by displaying goods for sale, even where the goods
are marked with a price
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Catalogues
 Grainger v Gough (S&O p73)
 If the catalogue publisher was making an offer then it
would be bound by every acceptance even if their stock
was exhausted.
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Advertisements
 Depends on circumstances
 Carlill v Carbolic Smoke Ball Co (S&O p74)
 But note legislative restrictions e.g. Trade Practices Act
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Negotiations
 An offer will not arise merely because parties have
reached agreement on one aspect of the deal
 Implied (or express) understanding that parties not
bound until formal contract executed
 Heads of Agreement
Copyright Guy Harley 2004
Fate of An Offer
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


Withdrawn by offeror
Accepted by offeree
Rejected by offeree
Lapse due to passing of time
Lapse due to death of offeror or offeree
Lapse due to failure of condition precedent
Copyright Guy Harley 2004
Withdrawing an Offer
 Cannot be withdrawn after accepted
 A contract is made when the offer is accepted
 The withdrawal of the offer must be communicated to the
offeree
 Special cases:
 Unilateral offers
 Options cannot be withdrawn
Copyright Guy Harley 2004
Withdrawing an Offer Before Acceptance
 Generally, an offeror may withdraw an offer at any time
before acceptance
 Routledge v Grant (S&OR p78)
 But, options cannot be withdrawn
 an option is a separate enforcable obligation and
cannot be withdrawn
 Exists where the offeree has given consideration to
keep an offer open
 Goldborough Mort v Quinn (S&OR p 80)
Copyright Guy Harley 2004
Withdrawal Must be Communicated
 Offeror must let the offeree know that the offer is
withdrawn
 Byrne & Co v Tienhoven & Co S&OR p79)
 Offeror does not have to communicate withdrawal
personally
 Would a reasonable person in the position of the offeree
conclude that the offer had been withdrawn?
Copyright Guy Harley 2004
Withdrawing a Unilateral Offer
 Involves a unilateral promise e.g. Carllil v Carbolic
Smoke Ball Co (S&O p74)
 If offeree has acted on the promise then offeror cannot
withdraw until offeree has had a reasonable opportunity
to complete
Copyright Guy Harley 2004
Rejecting an Offer
 Once rejected, an offer cannot be accepted
 May be rejected expressly or by implication
 Implied
 Offeree’s actions are inconsistent with an intention to
accept
Copyright Guy Harley 2004
Rejecting An Offer (Cont.)
 A counter offer is a rejection
 Hyde v Wrench (S&O p81)
 Any material alteration is a counter offer
 Restating the offer when accepting is not a
counter offer
 Turner Kempson v Camm (S&O p81)
Copyright Guy Harley 2004
Rejecting An Offer (Cont.)
 A counter offer is a rejection (cont.)
 Asking for clarification is not a counter offer
 Reasonable person test
 examine all circumstances
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Lapse of Offer
 Due to death of either party unless
 An option; and
 Does not involve personal skill or service by the
deceased
 Due to failure of condition precedent
 Due to time
 Express time limit
 Otherwise, offer remains open for a reasonable time
Copyright Guy Harley 2004
Lapse of Offer (Cont.)
 Due to time (Cont.)
 What is reasonable time depends on:
 Method by which offer made
 Nature of the transaction
 Terms of Proposed Contract
 Actions of parties between offer &
purported acceptance
 Intimations as to time by offeror
Copyright Guy Harley 2004
Law of Contract
Acceptance
Copyright Guy Harley 2004
Accepting the Offer
 Only person to whom the offer was made may accept
 Acceptance must be final & unqualified
 Must be communicated to the person who made the
offer (some exceptions)
Copyright Guy Harley 2004
Accepting the Offer (Cont.)

Acceptance must be final & unqualified
 “Subject to Formal Contract” – 3 possibilities
1. There is a contract & one of terms is that
documentation be prepared
2. There is a contract but nothing can
happen until contract prepared
Copyright Guy Harley 2004
Accepting the Offer (Cont.)

Acceptance must be final & unqualified (cont.)
 “Subject to Formal Contract” (cont.)
3. There is no contract
 Masters v Cameron (S&OR p82)
 Plastyne Products v Gall
Engineering (S&OR p83)

Communications after acceptance are irrelevant
Copyright Guy Harley 2004
Acceptance Must be Communicated
 Silence does not amount to acceptance
 Acceptance by large companies
 Who must receive acceptance?
 Depends on intention of parties
 Acceptance usually occurs when the communication
is received in the ordinary course of business or
would have been received if ordinary course of
business were followed
Copyright Guy Harley 2004
Acceptance Must be Communicated
 Internet
 Electronic Transactions Act
 Receipt occurs when it enters the
addressee’s designated information system
 Otherwise, when it comes to attention of
addressee
Copyright Guy Harley 2004
Acceptance Must be Communicated
 Express Communication of Acceptance is not necessary
where
 Implied from past dealings between parties
 Industry custom
 Acceptance indicated by conduct
 Unilateral contracts
 Postal rule applies
Copyright Guy Harley 2004
Acceptance Must be Communicated
 The Postal Rule
 Applies where offeror has expressly or impliedly
accepted post as the means of communication of
acceptance
 Acceptance occurs at time of posting not receipt
 Applies to all situations where non-instantaneous
communications are used
 Often determines jurisdiction
 Berinkibon v Stahag Stahl (S&OR p 86)
Copyright Guy Harley 2004
Acceptance Must be Communicated
 Mode & timing of acceptance must conform to offeror’s
requirements
 BUT, nominating a mode of acceptance may not set the
only mode of service
 Spectra v Pindari
 Agent of the person to whom the offer was made may
accept on their behalf
 Powell v Lee (S&OR p87)
Copyright Guy Harley 2004
Has an offer been
made?
No
No Contract
Yes
Did the offeror
intend to revoke
the offer?
Yes
Did the offeror
communicate
revocation?
No
Has the offer
lapsed?
No
Yes
Yes
No
Has acceptance
been received by
the offeror?
Yes
No
Contract
Copyright Guy Harley 2004
Yes
Was acceptance
made under the
postal rule?
No
Exercises
Copyright Guy Harley 2004
Exercise 3.25
 Marlena offered to sell her car to John for
$78,000.
 John said that he would “need some time to
think about it” and would “get back” to her.
 After 3 days John called and said that he
accepted Marlena’s offer.
 Marlena informed John that, since she hadn’t
heard from him, she had sold the car to Kirsten.
 Advise John as to whether he is entitled to the
car
Copyright Guy Harley 2004
Exercise 3.27
Baral Ltd is a building materials wholesaler. On
Monday, the company received by post an order
from a regular customer requesting 3 tonnes of
cement gravel to be delivered according to the
terms on the order form on Monday week. The
company immediately signed the order form and
posted back its confirmation that it would deliver
on the order as requested. It was usual for these
companies to deal by post.
Copyright Guy Harley 2004
Exercise 3.27 (cont.)
The confirmation of order form would usually have taken
only a few days to reach the customer but unfortunately,
due to a postal strike, the customer did not receive
acceptance of the order until Friday night, by which time it
had already ordered the same materials from an alternative
wholesaler (assuming that Baral Ltd was unwilling or
unable to deliver) and faxed Baral Ltd cancelling the order
(the fax arrived on Friday night but was not read by anyone
from Baral until Monday morning). The customer is refusing
to accept the gravel or pay for it. Advise Baral Ltd.
Copyright Guy Harley 2004
Exercise 3.30
 Same facts as before
 Would your answer change if:
 The order had been received by email and the return
email confirming the order had been slow to reach the
customer due to a network failure; only reaching the
server on Monday night: by which time the customer
had faxed a cancellation of the order
 The order had been received by fax and the return fax
had not been read by the customer until after the
customer had revoked the order by fax
Copyright Guy Harley 2004