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Contracts Exam Notes

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Case Index................................................................................................................................................. 8 Topic 1 (Part A) – Introduction ............................................................................................................... 10 Overview................................................................................................................................................. 10

Terms ................................................................................................................................................. 10 Formalities ......................................................................................................................................... 10 Terminating Contracts ....................................................................................................................... 10 Consequences of Termination ........................................................................................................... 10 Vitiating Factors ................................................................................................................................. 11 Types of Contract ............................................................................................................................... 11

Offer 12 Unilateral ........................................................................................................................................... 12

Identifying an Offer ................................................................................................................................ 12 Invitation to Treat .............................................................................................................................. 12

Recipients of Offers ................................................................................................................................ 13 Ticket Cases ............................................................................................................................................ 13 Termination of an Offer .......................................................................................................................... 13

Revocation and Rejection .................................................................................................................. 13 Lapse of Time ..................................................................................................................................... 13 Non-occurrence of a Condition ......................................................................................................... 13 Death ................................................................................................................................................. 13 Cases .................................................................................................................................................. 14

Acceptance ............................................................................................................................................. 16 Knowledge & Compliance .................................................................................................................. 16 Communication ................................................................................................................................. 16 Acceptance by benefit ....................................................................................................................... 16 Acceptance by Conduct ..................................................................................................................... 17 Postal Acceptance Rule ...................................................................................................................... 17 Electronic Transactions Act 2000 (NSW) ........................................................................................... 17 Cases .................................................................................................................................................. 18

Consideration ......................................................................................................................................... 21 Classification of Consideration .......................................................................................................... 21 Executory Consideration .................................................................................................................... 21 Executed Consideration ..................................................................................................................... 21 Referability......................................................................................................................................... 22 Sufficient Consideration .................................................................................................................... 22

Past Consideration ........................................................................................................................ 22 Illusory ........................................................................................................................................... 22 Public Duty .................................................................................................................................... 22 Existing Legal Duty ........................................................................................................................ 22 Part Payment of Debt ................................................................................................................... 22 Exceptions ..................................................................................................................................... 23

Cases .................................................................................................................................................. 23 Estoppel .................................................................................................................................................. 28

Introduction ....................................................................................................................................... 28 Elements of Estoppel ......................................................................................................................... 28 Reliance Theory ................................................................................................................................. 29 Estoppel as an Independent Cause of Action .................................................................................... 29 More Detailed Notes ......................................................................................................................... 29

Inducement ................................................................................................................................... 29 Detrimental Reliance .................................................................................................................... 30 Non-financial Detriment – See (Commonwealth v Verwayen) ..................................................... 30 Reasonableness ............................................................................................................................ 31 Unconscionable Conduct .............................................................................................................. 31

Current Approach to Relief ................................................................................................................ 31 Estoppel versus Contract Law ............................................................................................................ 31

Interaction with Contract Law ...................................................................................................... 31

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Formation ..................................................................................................................................... 31 Privity ............................................................................................................................................ 32 Formalities .................................................................................................................................... 32 Contract Variations ....................................................................................................................... 32 Post Contract Variations ............................................................................................................... 32 Termination of a Contract ............................................................................................................. 32

Cases .................................................................................................................................................. 32 Intention ................................................................................................................................................ 34

Introduction ....................................................................................................................................... 34 Domestic and Social Agreements – Presumption of no intention ..................................................... 34 Commercial Agreements – Strong presumption of intention ........................................................... 34 Recent Developments ........................................................................................................................ 35 Government Agreements .................................................................................................................. 36 Preliminary Agreements .................................................................................................................... 36

Capacity .................................................................................................................................................. 37 Minors ................................................................................................................................................ 37

Minors' contracts governed by legislation – no case law rqd. ...................................................... 37 Mental illness or intoxication ........................................................................................................ 37 Minors (Property and Contracts) Act 1970 (NSW) .................................................................... 37

Cases .................................................................................................................................................. 39 Certainty ................................................................................................................................................. 40

Completeness .................................................................................................................................... 40 Agreements to Agree .................................................................................................................... 41

Uncertainty ........................................................................................................................................ 41 Agreements to Negotiate in Good Faith ....................................................................................... 42

Illusory Promises ................................................................................................................................ 42 An illusory promise is not enforceable and can be dealt with in two ways: ..................................... 42 Severance .......................................................................................................................................... 42 Waiver ................................................................................................................................................ 43 Cases .................................................................................................................................................. 43

Formalities .............................................................................................................................................. 45 Form of Contracts .............................................................................................................................. 45 Evidenced in Writing .......................................................................................................................... 45 More Than One Document ................................................................................................................ 46 Material Terms .................................................................................................................................. 46 Signature by the Party Charged or Their Agent ................................................................................. 46 Electronic Documents ........................................................................................................................ 46 Consequences of non-Compliance with Statute ................................................................................ 47 Establishing the Existence of a Contract ............................................................................................ 47 Severance .......................................................................................................................................... 47 Variation and Termination ................................................................................................................. 48

Privity of Contract ................................................................................................................................... 49 Exceptions to the Privity Doctrine ..................................................................................................... 50

Restrictive Covenant ..................................................................................................................... 50 Agency ........................................................................................................................................... 50 Assignment ................................................................................................................................... 50 Trust .............................................................................................................................................. 50 Estoppel ........................................................................................................................................ 50 Tort................................................................................................................................................ 51

Exclusion and Limitation Clauses ....................................................................................................... 51 Himalaya Clauses .......................................................................................................................... 52

Cases .................................................................................................................................................. 52 Express Terms ......................................................................................................................................... 53

Terms and Communications of the Parties........................................................................................ 53 Consumer and Standard Form Contracts .......................................................................................... 53 Statements Made During Negotiation ............................................................................................... 53

Is the Statement a term of the Contract? ..................................................................................... 53

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The Relative Expertise of the Parties ............................................................................................ 54 Importance of the Statement ....................................................................................................... 54

Where the Written Contract Replaces an Earlier Verbal Contract .................................................... 54 Written Terms and the Effect of Signature ........................................................................................ 54 L’Estrange v Graucob Rule ................................................................................................................. 54

Circumstances in Which the Effect of Signature may be Avoided ................................................ 54 Signature and Electronic Contracts ............................................................................................... 55

Non Est Factum .................................................................................................................................. 55 Cases ................................................................................................................................................. 56

Incorporation of Terms by Notice and Implication ................................................................................ 58 Incorporation of Terms by Notice ...................................................................................................... 58 Timing ................................................................................................................................................ 58

Knowledge of Notice ..................................................................................................................... 58 Reasonable Notice of Contractual Documents ............................................................................. 58 Acceptance Of Ticket .................................................................................................................... 59

Onerous Terms ................................................................................................................................. 59 Reasonable Notice and Non-Contractual Documents ....................................................................... 59 Unusual Terms ................................................................................................................................... 59 Incorporation of Terms by a Course of Dealing ................................................................................. 59 Incorporating Terms by Implication .................................................................................................. 60

Terms Implied by Law ................................................................................................................... 60 Terms Implied by Custom ............................................................................................................. 61 Terms Implied in Fact .................................................................................................................... 61 BP Refinery Tests ........................................................................................................................... 61

Cases ................................................................................................................................................. 62 Construction and Exclusion Clauses ....................................................................................................... 63

Parol Evidence Rule ....................................................................................................................... 63 Surrounding Circumstances .......................................................................................................... 63 Clear Express Words Will Prevail .................................................................................................. 63

Exclusion Clauses ............................................................................................................................... 64 Common Law Approach to Exclusion Clauses ............................................................................... 64 Principle of Contra Preferentum ................................................................................................... 64 Does the Clause Apply to the Issue in Dispute? ............................................................................ 64 The Four Corners Rule................................................................................................................... 64 Deviation Rule ............................................................................................................................... 65 Negligence .................................................................................................................................... 65

Cases .................................................................................................................................................. 65 Extrinsic Evidence ................................................................................................................................... 67 Parol Evidence Rule ................................................................................................................................ 67 Exceptions to the Parol Evidence Rule ................................................................................................... 68

Collateral Contracts ........................................................................................................................... 68 Estoppel ............................................................................................................................................. 68 Rectification ....................................................................................................................................... 69 Contract with Condition Precedent ................................................................................................... 69 True Consideration ............................................................................................................................ 69

Extrinsic Evidence in Construing a Contract ........................................................................................... 69 Ambiguity ........................................................................................................................................... 69 Prior Negotiations .............................................................................................................................. 70 Subsequent Conduct .......................................................................................................................... 70 Evidence of Trade Usage ................................................................................................................... 70

Termination by Agreement & Failure of Contingent Condition ............................................................. 71 The Right to Terminate a Contract ......................................................................................................... 71 Termination under the Original Contract ............................................................................................... 71

Express Power to Terminate .............................................................................................................. 71 Implied Power to Terminate .............................................................................................................. 72

Termination by Subsequent Agreement ................................................................................................ 72 Unilateral Discharge........................................................................................................................... 72

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Termination by Abandonment ............................................................................................................... 73 Contingent Conditions ............................................................................................................................ 73

Contingent Conditions to Performance and Formation .................................................................... 74 The Duty to Co-operate .......................................................................................................................... 74

Non-Fulfilment ................................................................................................................................... 74 Consequences of Non-Fulfilment ...................................................................................................... 75 Void or Voidable? .............................................................................................................................. 75 Notice................................................................................................................................................. 75 Who Can Terminate? ......................................................................................................................... 75 Waiver ................................................................................................................................................ 75 Restrictions on the Right to Terminate .............................................................................................. 76

Termination by Breach ........................................................................................................................... 77 Right to Terminate for Breach ................................................................................................................ 77 When is there a Right to Terminate for Breach? .................................................................................... 77 Termination for Breach of Condition ...................................................................................................... 79

Relevant Factors in Assessing if a Term is a Condition ...................................................................... 80 What is an Inter-mediate Term? ............................................................................................................ 81

When will a breach of an Inter-mediate term trigger termination?.................................................. 81 CASES ...................................................................................................................................................... 81 Termination by Repudiation ................................................................................................................... 83 Introduction ............................................................................................................................................ 83 Repudiation and Anticipatory Breach .................................................................................................... 83 Repudiation and Other Grounds for Terminating ............................................................................. 83 Conduct Amounting To Repudiation ...................................................................................................... 84 Words and Conduct ................................................................................................................................ 84

Conduct .............................................................................................................................................. 84 Inferred from a Combination of Events ............................................................................................. 85 Instalment Contracts & Progress Payments ...................................................................................... 85

Repudiation and an Erroneous Interpretation of the Contract .............................................................. 86 How Should an Aggrieved Party Respond? ........................................................................................ 86

Inability in Fact ....................................................................................................................................... 86 Rights to Suspend Performance ............................................................................................................. 87 Termination by Frustration .................................................................................................................... 88 Introduction ............................................................................................................................................ 88 Categories of Frustration ........................................................................................................................ 88

Absolute Impossibility........................................................................................................................ 88 Destruction of Subject Matter ....................................................................................................... 88 Death of Incapacity of a Party ...................................................................................................... 89

Radical Difference .............................................................................................................................. 89 Illegality.............................................................................................................................................. 89 Delay .................................................................................................................................................. 90 Futility (Disappearance of Basis for Contract) ................................................................................... 90 Contracts Involving Land.................................................................................................................... 90

Force Majeure Clauses ........................................................................................................................... 90 Limits of Frustration ............................................................................................................................... 90 Consequences of Frustration .................................................................................................................. 91 Effect of Legislation ................................................................................................................................ 92

Relevant Provisions in the NSW Act .................................................................................................. 92 CASES ..................................................................................................................................................... 93 Termination by Delay ............................................................................................................................. 94 Time Stipulations .................................................................................................................................... 94 At What Time is Performance Required ................................................................................................. 94 Where Time is of the Essence ................................................................................................................ 94

Express Designation ........................................................................................................................... 94 No Express Stipulation ....................................................................................................................... 94 Construing Time Stipulation .............................................................................................................. 94

Where Time is not of the Essence .......................................................................................................... 95

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Repudiation ....................................................................................................................................... 95 Notice ..................................................................................................................................................... 95

The Notice Procedure ........................................................................................................................ 95 The Requirements for a Valid Notice ................................................................................................. 95

What is a Reasonable Time for Compliance with a Notice? .......................................................... 95 Where the Contract is Silent about the Time for Performance.............................................................. 96 The Effect of an Extension of the Time for Performance ....................................................................... 96 Consequences of Affirmation or Termination ........................................................................................ 97 Acceptance of Repudiation .................................................................................................................... 97 The Need to Elect ................................................................................................................................... 97 Where the Contract is Affirmed ............................................................................................................. 97

Consequences of Affirmation for the Aggrieved Party ...................................................................... 97 Damages ....................................................................................................................................... 97 Earning the Contract Price ............................................................................................................ 98 Does the Aggrieved Party still have to Perform? .......................................................................... 98

Consequences of Affirmation for the Breaching or Repudiating Party ............................................. 98 Where the Contract is Terminated ......................................................................................................... 98

Consequences of Termination for the Aggrieved Party ..................................................................... 98 Rights that Survive Termination .................................................................................................... 98 Restitution ..................................................................................................................................... 98 Alternative Grounds for Termination ............................................................................................ 99

Consequences of Termination for the Non-Performing Party ........................................................... 99 Right to Cure a Breach ............................................................................................................................ 99 Restrictions on the Right to Terminate .................................................................................................. 99

Readiness and Willingness ................................................................................................................. 99 Actual Breach ..................................................................................................................................... 99 Anticipatory Breach ........................................................................................................................... 99

Where the Repudiation is Accepted .............................................................................................. 99 Where the Contract is not Terminated.......................................................................................... 99

Claims for Damages ......................................................................................................................... 100 Election ................................................................................................................................................. 100

Election as a Restriction on Termination ......................................................................................... 100 Requirements of Election ................................................................................................................ 100

o Accepting or Encouraging Ongoing Performance ............................................................. 101 o Acts Contemplated Under the Contract ............................................................................. 101 o Delay in Exercising the Right to Terminate ........................................................................ 101 o Extensions of Time ........................................................................................................... 101 o Claim for Specific Performance ....................................................................................... 101 o Failure to Perform .............................................................................................................. 101 o Acts Which Prevent Performance ................................................................................... 101

Conduct Must be Unequivocal ........................................................................................................ 101 Communication of Election ............................................................................................................. 102 Finality of Election ........................................................................................................................... 102 Estoppel and a Right to Terminate .................................................................................................. 102

Unconscionable Terminations .............................................................................................................. 102 Equity ............................................................................................................................................... 102 Statute ............................................................................................................................................. 102

Good Faith ............................................................................................................................................ 103 Contractual Restrictions ....................................................................................................................... 103 CASES .................................................................................................................................................... 103 Vitiating Factors – Misrepresentation and Misleading and Deceptive Conduct .................................. 105 Vitiating Factors .................................................................................................................................... 105 Misrepresentation ................................................................................................................................ 105

Elements of Actionable Misrepresentation ..................................................................................... 106 Misrepresentation of Fact ............................................................................................................... 106

Puffs and opinions ...................................................................................................................... 106

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Statements as to the future ........................................................................................................ 107 Positive Misrepresentation .............................................................................................................. 108 False Impressions ............................................................................................................................. 109 Special Contracts and relationships ................................................................................................. 109

Contracts of Insurance ................................................................................................................ 109 Contracts of guarantee ............................................................................................................... 109 Fiduciary relationships ................................................................................................................ 109 Contracts for the sale of land ...................................................................................................... 110 Duty of care ................................................................................................................................. 110

Culpability ........................................................................................................................................ 110 Categories of Misrepresentation ................................................................................................ 110 Fraudulent misrepresentation .................................................................................................... 110 Negligent Misrepresentation ...................................................................................................... 110 Innocent Misrepresentation ....................................................................................................... 111

Reliance by the Representee ........................................................................................................... 111 Actuality of Reliance ................................................................................................................... 111 Materiality of Misrepresentation................................................................................................ 112

Misleading and Deceptive Conduct ................................................................................................. 112 Cases ................................................................................................................................................ 112

Unconscionable Conduct ...................................................................................................................... 115 Introduction ..................................................................................................................................... 115 Relief from Unconscionable Transactions ....................................................................................... 116 Statutory Inroads ............................................................................................................................. 116

Australian Consumer Law ......................................................................................................... 116 Contracts Review Act 1980 (NSW)............................................................................................ 117

CASES .................................................................................................................................................... 117 Topic 13 – Part B: Remedies and Illegality ............................................................................................ 118 Introduction .......................................................................................................................................... 118 Statutory illegality ................................................................................................................................ 118 Common Law Illegality ......................................................................................................................... 119

Contracts Involving the Commission of a Crime, Tort or Breach of Statute .................................... 120 Contracts Which Prejudice the Administration of Justice ............................................................... 120 Contracts Which Promote Corruption in Public Life ........................................................................ 120 Contracts Promoting Sexual Immorality .......................................................................................... 121 Contracts Imposing Servitude .......................................................................................................... 121 Contracts to Defraud The Revenue ................................................................................................. 121 Contracts Infringing the Laws of a Foreign Country ........................................................................ 121 Contracts in Restraint of Trade ........................................................................................................ 121

Effects of Illegality ................................................................................................................................ 122 Unenforceability .............................................................................................................................. 123 Non-Retrieval ................................................................................................................................... 123

CASES .................................................................................................................................................... 124

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Case Index

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd, 112

Administration of PNG v Leahy, 39 Ankar Pty Ltd V National Westminster Finance

(Australia) Ltd, 81 Associated Newspapers Ltd v Bancks, 81 Australian Woollen Mills Pty Ltd V the

Commonwealth, 24 Balmain New Ferry Co v Robertson, 60 Baltic Shipping v. Dillon, 59 Banque Brussels Lambert SA v Australian

National Industries Ltd, 39 Beaton V McDivitt, 23 Biotechnology Australia Pty Ltd v Pace, 44 Blomley v Ryan, 116 Bowes v Chaleyer, 98 Bradshaw v Gilbert’s (Australasian) Agency

(Vic) Pty Ltd, 123 Brambles Holdings Ltd v Bathurst City Council,

18 Brinkibon v Stahag Stahl, 20 Brisbane City Council v Group Projects Pty Ltd,

93 Butler Machine Tool Co Ltd V Ex-Cell-O

Corporation Ltd, 18 Byrne v Australian Airlines Ltd (1995), 60 Callaghan v O’Sullivan, 123 Carlill v. Carbolic Smoke Ball Company [1893],

14 Carr v J A Berriman, 84 Codelfa Constructions Pty Ltd v. State Rail

Authority of NSW, 89 Codelfa v State Rail Authority, 61 Commercial Bank of Australia ltd v. Amadio,

114 Commonwealth of Australia v Verwayen, 33 Concrete Constructions (NSW) Pty Ltd v

Nelson, 112 Concut Pty Ltd v Worrell, 72 Con-Stan Industries of Australia v Norwich

Winterthur Insurance Ltd, 61 Coulls v Bagot's Executor And Trustee Co Ltd,

52 Council of the Upper Hunter v Australian

Chilling and Freezing Co Ltd, 43 Crawford Fitting v Sydney Valve and Fitting, 72 Curtis v. Chemical Cleaning and Dying

Company, 55 Darlington Futures Ltd v Delco Australia Pty

Ltd, 66 Davies v London And Provincial Marine

Insurance Co, 111 Davis v Pearce Parking Station Pty Ltd, 66 Demagogue Pty Ltd v Ramensky, 112

DTR Nominees Pty Ltd v Mona Homes Pty Ltd, 86

DTR Nominees v Mona Homes, 73 Empirnall Holdings Pty Ltd V Machon Paull

Partners Pty Ltd, 19 Ermogenous v. Greek Orthodox Community of

SA Inc, 35 Felthouse v Bindley, 19 Fibrosa SA v. Fairbairn Lawson Combe Barbour

Ltd, 91 Fitzpatrick v Michel, 111 Foakes v Beer, 25 Foran v. Wight, 99 George v Greater Adelaide Land Development

Co Ltd, 124 Gibson V Manchester City Council [1979], 14 Glasbrook Brothers Ltd v Glamorgan County

Council, 24 Goldsbrough Mort & Co Ltd V Quinn (1910), 15 Hall v Busst, 44 Hong Kong Fir Shipping Co. Ltd v. Kawasaki

Kisen Kaisha Ltd, 77 Hoyts Pty Limited v. Spencer, 68 Immer v Uniting Church Trust, 101 Je Maintiendrai Pty Ltd v Quaglia, 32 JJ Savage & Sons Pty Ltd v Blakney, 56 Koompahtoo Local Aboriginal Land Council v

Sanpine, 81 Krell v. Henry, 90 Laurinda Pty Ltd v Capalaba Park Shopping

Centre, 95 L'Estrange v Graucob Ltd, 56 Lindner v Murdock's Garage, 120 Louinder v Leis, 96 MacRobertson Miller Airline Services V

Commissioner Of State Taxation (WA) (1975), 14

Maple Flock Co Ltd v Universal Furniture Product, 85

Masters v. Cameron, 36 McDermott v Black, 73 Meehan v Jones, 44 Mobil Oil Australia v Wellcome International

(1998), 15 Musumeci and anor v. Winadell Pty Ltd, 26 Nicholas v Thompson, 111 Nordenfelt v. Maxim Nordenfelt Guns Ltd, 121 North v Marra Developments Ltd, 123 Ocean Sun Line v Fay, 58 Oscar Chess Ltd v Williams, 56 Pacific Carriers v BNP Paribas, 65 Pan Foods v ANZ Bank, 71 Pao On v Lau Yiu Long, 25 Perri v Coolangatta Investments, 75

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Petelin v. Cullen, 55 Pharmaceutical Society of Great Britain v.

Boots Cash Chemists (Southern) Ltd [1953], 14

Port Jackson Stevedoring Pty Ltd v. Salmond and Spraggon, 51

Re Selectmove, 26 Redgrave v Hurd, 112 Rinaldi & Patroni P/L v Precision Mouldings

P/L, 62 Roscorla v Thomas, 24 Royal Botanic Gardens and Domain Trust v

South Sydney Council, 69 St John Shipping Corp v. Joseph Rank Ltd, 118 State Rail Authority NSW v Heath Outdoor, 67 Tanwar Enterprises v Cauchi, 103, 109 Taylor v. Caldwell, 88 The Crown V Clarke, 20

The Progressive Mailing House Pty Ltd v. Tabali, 85

Thomas Brown and Sons v. Fazal Deen, 122 Thomas National Transport v May & Baker, 65 Thornton v Shoe Lane Parking, 59 Todd v Nichol, 39 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, 56 Tramways Advertising Ltd v. Luna Park ltd, 78 Trident General Insurance Co. Ltd v. McNiece

Bros Pty Ltd, 49 Waltons Stores (Interstate) Ltd V Maher, 32 Whitlock v. Brew, 42 Wigan V Edwards, 25 Williams v Roffey Bros & Nicholls (Contractors)

Ltd, 26 Woolworths v. Kelly, 24 Yango Pastoral Co. Pty Ltd v. First Chicago

Australia Ltd, 117

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Topic 1 (Part A) – Introduction

Overview

For a contract to exist you must have: 1. Offer (versus ‘invitation to treat’) 2. Acceptance 3. Consideration (exchange of promises)

Other issues / requirements: 1. Intention to create legal relations 2. Capacity 3. Legality (if the subject of the contract is illegal then no contract can exist)

Terms

1. Can be expressed of implied (e.g. merchantable quality, fit for purpose, etc.)

2. Are the terms certain (specific and clear)?

3. Construction (interpretation of words)

Formalities

Some contracts need to be in words (e.g. for real property)

Terminating Contracts

1. Fulfil obligations

2. Breach

3. Frustration

4. By agreement

5. Repudiation

Consequences of Termination

1. Damages

2. Specific performance

3. Injunction

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Formation

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4. Recision (requires vitiating factors)

5. Restitution

Vitiating Factors

1. Misleading and deceptive conduct

2. Mistake

3. Misrepresentation

4. Duress

5. Unconscionability

6. Undue influence

Types of Contract

1. Bilateral

2. Unilateral (acceptance is communicated by doing the act) – Carlill v Carbolic Smoke Ball Co

3. Executory (delivery of the promise is in the future

4. Executed (promised act has been completed)

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Offer

Relevant Cases:

Carlill v Carbolic Smoke Ball Co [1893]

Gibson v Manchester City Council [1979]

MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975)

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953]

Goldsborough Mort & Co Ltd v Quinn (1910)

Mobil Oil Australia Ltd v Wellcome International (1998) An offer is a statement by the offeror that he or she is willing to enter into a contract on particular terms. An offer will only be effective when it is communicated to the offeree. 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. Contracts may take the form of: 1. Unilateral contract, where there is 1 executed and 1 executory consideration. 2. Bilateral contract, where there are 2 executory considerations. In order for the courts to determine whether there has been a valid offer, the test is that an offer must normally be interpreted in the sense that it would reasonably be understood by an ordinary person – Carlill v Carbolic Smoke Company (1893).

Unilateral

The offer must be made to the ‘world’. In Carlill v Carbolic Smoke Ball Company [1893] QB, the court held that an offer is not mere puffery if the language was not so vague that you could not construe it as a promise. Secondly, the offer was accepted and consideration conveyed through the execution of the act in return for the promise.

In Gibson v Manchester City Council [1979] House of Lords, Lord Diplock said that an offer is not valid if the language of the offer is vague and/or not specific in communicating the intent to enter an agreement.

Identifying an Offer

An offer is a statement by the offeror that he or she is willing to enter into a contract on particular terms. An offer should be distinguished from the following:

1. Invitations to treat or negotiate (Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953];

2. Puffery (Carlill v Carbolic Smoke Ball Co [1893]);

3. Supply of information (Stevenson Jacques and Co v McLean (1880)); and

4. Counter-offers (Butler Machine Tool Co Ltd v Ex-Cell-o Corp [1979]).

Invitation to Treat

Offers should be distinguished from an invitation to treat or negotiate. In Pharmaceutical Society of Great Britain v Boots Cash and Chemists [1953] QBCA, the court ruled products on display or on a shelf in a shop are an invitation to treat, and not an offer. An offer is made by the customer, once they have selected the goods and have taken them to the

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sales counter. Up to this point customers are allowed to return goods to the shelves, so a contract cannot be made. The offer is accepted and a contract is made when the shop takes payment, and not before.

Recipients of Offers

An offer will only be effective when it (all of its terms) is communicated to the offeree. An offer cannot be accepted unless the acceptor is aware of the existence of the offer and its terms - Carlill v Carbolic Smoke Ball Co [1893], MacRobertson Miller Airline Services v Cmr State Taxation (WA) (1975).

Ticket Cases

In MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) [1975], the court in varying judgements said that a contract was not made when a ticket was issued, rather it is a receipt and the offer is made by the customer in taking a seat and the acceptance results through the execution of the service. Barwick CJ said that it is similar to a unilateral contract, the customer taking the seat is an offer and the airline, in accepting the offer through execution of service, was allowed to keep the money paid for the ticket as a reward, else they return the money. Stephen J (dissenting) said that the ticket recorded the terms of an offer and a customer then had the chance to accept or reject those terms, and by taking a seat, agreed to the terms and a contract was formed.

Termination of an Offer

Revocation and Rejection

An offer is revoked when it is withdrawn and it may be revoked anytime before acceptance provided that it is communicated to the offeree prior to acceptance. In a Unilateral Contract, as per Mobil Oil Australia Ltd v Wellcome International (1998), an offer that is made to the world cannot be revoked while an offeree is in the act of executing consideration to accept the offer. Secondly a revocation cannot be made unless the revocation is made to all potential offerees. An offer may be rejected either expressly or inferred through an offerees actions, including making a counter offer as per Stevenson Jaques and Co v Mclean (1880).

Lapse of Time

An offeror will not be bound by a mere promise to keep an offer open unless as in Goldsbrough Mort and co Ltd v Quinn [1910] separate consideration is paid. Griffith CJ and Isaacs J both said that a promise to keep an offer open if supported by some consideration means that there can be no withdrawal of an offer within that period of time. There is a valid separate contract for valuable consideration.

An offer, after a reasonable period of time without acceptance will lapse.

Non-occurrence of a Condition

Where an offer is subject to a condition, such as finance or other approval, the failure of that condition causes the offer to lapse, Meehan v Jones (1982).

Death

Where an offeror dies, the offeree may accept the offer at any time before the death notice.

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Cases

Carlill v. Carbolic Smoke Ball Company [1893] FACTS The Carbolic Smoke Ball Company advertised that a £1000 reward would be paid to any person who contracted influenza, a cold or any disease after having used the smoke ball three times a day for two weeks and that the £1,000 was deposited with the Alliance Bank, Regent Street, to show the sincerity of the Carbolic Smoke Ball Company. Mrs Carlill bought the smoke ball in reliance of the advertisement and used it three times a day between 20 November 1891 and 17 January 1 892-after which she caught influenza. HELD The English Court of Appeal in an absolute majority found for Mrs Carlill, on the basis that a contract existed between the parties, and that Carbolic owed Mrs Carlill the advertised £1000. The court classified the contract as a unilateral contract, that is, an offer made to the world that is accepted by somebody performing the condition. Acceptance of the offer was contemporaneous with the performance of the condition and in this respect notification of the acceptance need not precede the performance

Gibson V Manchester City Council [1979] HOUSE OF LORDS - Offer or invitation to treat FACTS Mr Gibson inquired about buying the house he was renting from the council. The council's reply gave a price and said 'If you would like to make formal application to buy your Council house, please complete the enclosed application form and return it to me as soon as possible'. He did so, and later sought specific performance. HELD: He failed. It was impossible to regard the council's letter as an offer to sell capable of acceptance so as to constitute a contract.

MacRobertson Miller Airline Services V Commissioner Of State Taxation (WA) (1975) HIGH COURT OF AUSTRALIA - Ticket as offer or concluded contract FACTS The airline's ticket was typically given on tender of the price for the proposed travel entered on it. The ticket drew attention to endorsed 'conditions of carriage' which contained sweeping exemptions, including giving the airline the right to cancel or alter flight arrangements and to refuse carriage. A question arose whether the ticket attracted stamp duty as an 'agreement or memorandum of an agreement'. HELD: It could not be so described, since no contract was concluded at the time it was issued. Per Barwick CJ: the exemptions fully occupied the whole area of possible obligation so as to preclude any contract of carriage arising on issue, and, even disregarding them, the airline was not in contractual relations with the intended passenger until it provided him with a seat on the aeroplane: the ticket being only a receipt for payment of the fare. Per Stephen and Jacobs JJ: the ticket was merely an offer open for acceptance orally or by the later conduct of the passenger.

Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd [1953] FACTS Boots Chemists sold pharmaceutical products in a self-service fashion. That is, the products were on the shelf, customers lifted the products off the shelf and took them to the cashier for payment without reference to the pharmacist. The Pharmacy and Poisons Act 1933 (UK) made it an offence to sell poisons without the supervision of a registered pharmacist. The Pharmaceutical Society prosecuted Boots for selling poisons without proper supervision. HELD The court found in favour of Boots on the basis that a sale was when a binding contract came into existence. A contract was not formed at the point when the product was picked up from the self-service shelf of the store. The contract was formed when the product was taken to the pharmacist for payment and, therefore, the sale/contract was made under the supervision of a registered pharmacist. The self-service system did not amount to an offer,

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rather it amounted to an invitation to the customer to buy the product. The offer was accepted when the customer took the product to the pharmacist for payment. Somerville LJ expressed concern that if the law were the other way around, if the contract was created when the customer picked up the product, then the customer would be immediately bound. What if the customer changed his/her mind? The store could sue the customer if he/she put the product back on the shelf and selected a different product.

Goldsbrough Mort & Co Ltd V Quinn (1910) HIGH COURT OF AUSTRALIA - Irrevocable offer - Mistake as to meaning of contract FACTS Quinn signed a document stating 'I John Thomas Quinn in consideration of the sum of five shillings paid to me hereby grant to Goldsbrough Mort & Co Ltd the right to purchase (his properties known as Bena Billa) within one week from this date at the price of £I I0s per acre calculated on a freehold basis'. Goldsbrough Mort exercised their right, but not before Quinn purported to repudiate his offer. He claimed to have misunderstood the meaning of 'calculated on a freehold basis'. HELD: Goldsbrough Mort were entitled to specific performance. Quinn's attempt to withdraw was ineffectual, since there was a binding agreement; the document was either an agreement to sell subject to a condition subsequent which was performed, or an option given for valuable consideration. He had made no mistake as to the words used, and could not escape from the effect of the contract on the ground that he did not in his own mind intend them to have the meaning which the court was bound to place on them.

Mobil Oil Australia v Wellcome International (1998) FACTS Mobil represented to dealers that any dealer who performed at a set level for six years would be given a franchise for a further nine years at no cost. Mobil subsequently discontinued the scheme and a number of dealers alleged (amongst other things) breach of contract. HELD In a unilateral agreement the act of acceptance is also the consideration and act of performance. In this case Mobil’s revocation of its scheme made it impossible for the dealers to complete the act of acceptance. The trial judge held that once an offer was made, requiring performance as the act of acceptance, the offeror could not revoke the offer once the offeree has embarked upon acceptance. The Full Court disagreed. Although in some cases there may be an ‘implied ancillary unilateral contract’ in which the ‘offeror promises not to revoke once the offeree’ commences performance, that is not the same as saying that the original offer cannot be revoked - and there is no ‘universal proposition that an offeror is not at liberty to revoke the offer once the offeree ‘commences’ or ‘embarks upon’ performance of the sought act of acceptance …'

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Acceptance

Relevant Cases:

Butler Machine Tool Co Ltd v Ex-Cell-O Corp [1979] 1 All ER 965

Brambles Holdings P/L v Bathurst City Council (2001) 53 NSWLR 153

Felthouse v Bindley (1862) 142 ER 1037

Empirnall Holdings P/L v Machon Paull Partners P/L (1988) 14 NSWLR 523

Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34, p. 69R v Clarke (1927) 40 CLR 227

R v Clarke (1927) 40 CLR 227 An acceptance must be made in response to the offer. Subject to the terms of offer, acceptance may be in writing, oral or implied by offerees conduct. A contract is formed when acceptance is communicated to the other party. A contract is formed in the jurisdiction in which the acceptance is received.

Knowledge & Compliance

Generally an offer can only be accepted by those to whom an offer is made (Boulton v Jones). Also an offeree must be aware of the terms of an offer when acceptance occurs (R v Clarke).

Communication

An acceptance must be communicated to the offeror. The offeror can specify the mode of communication of acceptance (Manchester Diocesan Council for Education v Commercial and General Investments Ltd [1970]). In Butler Machine tools Co Ltd v Ex-Cell-O Corp (1979), the court ruled that the last form sent and received without objection is the binding contract and terms. In a unilateral contract, the offeror waives the right to have the agreement communicated. Silence cannot be considered by the offeror as a form of acceptance which binds the offeree to a valid contract, Felthouse v Brindley (1862). If the offeror has not prescribed a particular mode of acceptance, then the offeree may communicate his or her acceptance in any manner he or she wants provided that the acceptance comes to the notice of the offeror before the offer terminates. The law requires some objective manifestation of acceptance and it may be appropriate to infer acceptance in some circumstances (Empirnall Holdings v Machon Paull (1988)). For instance, silence of an offeree in conjunction with other circumstances, may indicate acceptance of an offer (Empirnall Holdings v Machon Paull (1988)). Generally, if no mode of acceptance is stipulated, acceptance should be communicated by the same means that were used to send the offer or by more efficient means.

Acceptance by benefit

In Empirnall Holdings v Machon Paul Partners (1988), the court objectively inferred acceptance when an offeree takes advantage of the benefits of a contract:

Acceptance must be communicated to the offeror except where the reasonable bystander can infer from the conduct of the offeree that they do in fact have knowledge of the terms

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and conditions of the contract and have continued to take the benefits of the offer under those terms and conditions.

Acceptance by Conduct

Where the terms of acceptance are not communicated, a court may objectively determine intentions of the parties by looking at their pre contractual conduct. In Brambles Holdings Pty Ltd v Bathurst City Council (2001), the court ruled pre-contractual conduct admissible on questions of construction, if the contract is ambiguous and it sheds light on genesis and objective aim (Codelfa Constructions). Construction of contract is an objective question for the court, not subjective beliefs of participants. Terms may be implied in 1 of 4 ways: 1. Contained in express terms 2. From nature of contracts itself 3. From usage (mercantile contracts) 4. Considerations of business efficacy

Postal Acceptance Rule

The postal acceptance rule deals with communication that is posted (Adams v Lindsell (1818)). The rule states that acceptance is communicated as soon as the letter is properly posted. In Brinkibon v Stahag Stahl Und Stahlwarenhandelsgesellschaft (1983), the court ruled that the postal acceptance rule does not apply in the Adams v Lendsell sense when dealing with instantaneous communication, such as telex. It such circumstances, acceptance is communicated when it is received by the other party.

Electronic Transactions Act 2000 (NSW)

The provisions of the Electronic Transactions Act 2000 (NSW) apply to email communications generally and have an impact upon issues concerning writing, signature and time and place of and dispatch and receipt of the email. ss. 5, and 13 of the act deal with issues of what constitutes electronic communication and timing issues.

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Cases Butler Machine Tool Co Ltd V Ex-Cell-O Corporation Ltd [1979} UK COURT OF APPEAL - Effect of counter-offer FACTS Butler's quotation to supply a machine tool contained printed conditions on the reverse, which included a price variation clause and stated that the conditions would prevail over any terms and conditions in the buyer's order. Ex-Cell-O's order in response contained conflicting printed conditions, with no provision for price variation. Butler sent an acknowledgment, and supplied the machine. It sued for a price increase. HELD It failed. Per Denning MR: considering the documents as a whole, the acknowledgment was the decisive document, since it made clear that the contract was on Ex-Cell-O's terms and not Butler's. Per Lawton and Bridge LJJ: Ex-Cell-O's order constituted a counter-offer which put an end to the effect of the quotation, and which was accepted by Butler's acknowledgment.

Brambles Holdings Ltd v Bathurst City Council (2001) FACTS Under successive agreements with a Bathurst City Council the contractor, Brambles managed the council's depot, which, though known as a “solid waste disposal depot”, was

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also used for the depositing of liquid waste. In the course of managing the depot Brambles charged and retained fees for accepting liquid waste. Summarised events are:

1. 1st Contract – 1 November 1989 expired 2. 20 February 1990 – Council wrote to Brambles stating it was ‘appropriate’ for

Brambles to increase liquid waste fees 3. 2nd Contract – 12 July 1990 – Clause 21 and 22 specified the fee and required a

portion of that fee to be given back to Council 4. Letter - 19 September 1991 – Council wrote to Brambles stating that it had resolved

to increase liquid waste fees and additional income to be put in a Liquid Waste Treatment Plant

5. Letter – 3 October 1991 – Brambles responded by denying the contract covered liquid waste.

Brambles continued to charge liquid waste fees as set out in mid September 1991, but retained money. HELD The forms of measurement used in a pre-contractual letter from the respondent Council to the appellant before the second contract, are not admissible since they do not demonstrate the genesis of the second contract nor identify the "meaning of a descriptive term". The parties' own opinions about the meaning of contractual terms are not relevant to the construction of those terms, although they may be relevant to the question of whether the parties intend to create legal relations. The letter was treated as an offer at trial and it was too late for the appellant to deny that the respondent Council had contractual intent at the appeal. In assessing whether the letter of offer was accepted, it is necessary to determine precisely the terms of the offer. Since the contractual language in the letter of offer is ambiguous, mutually known facts relating to the contractual background are admissible, as are the shared beliefs of the parties as to their rights. To be an implied acceptance of an offer, conduct must be "of such a character as necessarily to lead to the inference on the part of the defendants that the agreement had been accepted on the part of the plaintiffs and was to be acted upon by them". This is a question of fact, to be examined in context. By its conduct (charging for receipt of liquid waste at the rate specified in the letter of offer), the appellant was taking the proposed benefits from the respondent Council's land. Viewed in this context, the appellant unequivocally accepted the letter of offer by its conduct.

Felthouse v Bindley (1862) FACTS Paul 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, Bindley, not to sell the horse. Bindley mistakenly sold the horse. Felthouse sued the auctioneer for conversion. Was there a contract between Felthouse and his nephew for the sale of the horse? HELD Felthouse could not impose a sale of the horse on his nephew by requiring him to notify Felthouse if he did not wish to sell on those terms. There was no communication of acceptance before the sale; consequently the nephew was not bound to sell Felthouse the horse on the day of the auction.

Empirnall Holdings Pty Ltd V Machon Paull Partners Pty Ltd (1988) SUPREME COURT OF NEW SOUTH WALES - Acceptance of written terms by silence FACTS Representatives of Machon and Empirnall agreed orally that Machon would construct a building at Crows Nest for Empirnall. Machan commenced work and forwarded two copies of a standard contract for signature together with a letter saying 'we are proceeding on the understanding that the conditions of the contract are accepted by you and works are being conducted in accordance with those terms and conditions'. Empirnall never returned a signed contract, but paid some progress claims and was sued for the balance.

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HELD: Empirnall was bound by the terms of the contract, the case was not so much one of acceptance by silence as one of taking the benefit of an offer with knowledge of its terms and knowledge of the offeror's reliance on payment being made in return for his work.

Brinkibon v Stahag Stahl [1983] Facts The offeror, Brinkibon (London, England) wanted to sue the offeree, Stahag (Vienna, Austria) for breach of contract. Acceptance of Brinkibon’s offer had been by way of telex from London to Austria. Which jurisdiction’s law applied? The answer to this question depended on whether the postal rule applied - if it did the contract would have been concluded in England and English law would apply; if it did not apply then the contract would have been concluded where the acceptance was received – Vienna. Held The postal rule does not apply to direct/instant forms of communication (including telex) – as telex was used here the postal rule did not apply and the contract was formed in Vienna. The Court also observed that even though with telex the message may not be received by the intended recipient immediately (there may be agents or other third parties who receive the messages to be passed on to the intended recipient) a telex that goes directly from the offeree’s business to the offeror’s business (unlike a telegram which employs the use of a post office) should be treated as if it were an instantaneous communication. If a telex is sent to an office acceptance occurs when the telex reaches the place of business, not when it actually gets to the person it is addressed to.

The Crown V Clarke (1927) High Court of Australia - Unilateral offer - Mental element in acceptance FACTS The Crown proclaimed a £1000 reward for information leading to the arrest and conviction of the murderers of two policemen. Clarke was arrested and charged in connection with the murder of one, and then made a Statement and gave evidence leading to the conviction of Treffene and Coulter. He later sued for the reward. The trial judge found that Clarke told the truth after his arrest only in order to save himself from the unfounded charge of murder, and not intending to claim the reward. HELD There was no contract and Clarke could not recover, since he did not act on the faith of, or in reliance upon the proclamation.

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Consideration

Relevant Cases Beaton v McDivitt (1987) 13 NSWLR 162

Australian Woollen Mills (1954) 92 CLR 424

Woolworths v Kelly (1991) 22 NSWLR 189

Roscorla v Thomas (1842) 3 QB 234

Glasbrook Bros Ltd v Glamorgan Council [1925] AC 270

Wigan v Edwards (1973) 47 ALJR 586

Foakes v Beer (1884) 9 App Cas 605

Pao On v Lau Yiu Long [1980] AC 614

Musumeci v Winadell P/L (1994) 34 NSWLR 723

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

Re Selectmove Ltd [1995] 1 WLR 474

Only a person who has given consideration for the others party’s promise may enforce the contract. When there is an exchange of promises a Bilateral contract exists, the promises serve as consideration for each other. Without consideration, an agreement is said to be nadum pactum (naked agreement). The first approach to consideration is the benefit/detriment approach, which requires a detriment to the promisee or a benefit to the promisor (Currie v Misa (1875)). The second aspect as followed in Australia comes from the HCA in Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR. In it the court introduced the bargain element, which says that

‘Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak the relation of a quid pro quo’

This bargain requirement sees that the consideration as the benefit conferred on the promisor or the detriment suffered by the promisee as the price given in return for the promise.

Classification of Consideration

Executory Consideration

Dan and Virginia enter into an agreement whereby Virginia is to mow Dan's lawn and Dan will pay her $75 for doing so. Both parties' consideration is executory because they still have to perform the promised acts. The mere making of a promise may be regarded as consideration.

Executed Consideration

Virginia's promise to mow the lawn may be given in exchange for the payment of $75 by Dan. The payment of money is executed consideration. It has been bargained for and provided so Dan is entitled to enforce Virginia's promise to mow the lawn.