law of contract - the university of sydney 2016-17... · – sources of contract law ... • the...

LAW OF CONTRACT

LPAB – Summer 2016

Alex Kuklik

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Lecture 1• House Keeping

– Course description and objectives

– Classes

– Assessment

– Text and materials

• Course introduction

– What is a contract? – The definition of contract

– Types of contracts

– The role of contracts

– Sources of contract law

– How do contracts ‘fit in’ with other areas of law

– Freedom of contract:

• Capacity – Who can enter into a contract?

• Illegality and restraints of trade

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Lecture 1Formation of contract

• The Fact of Agreement: Offer

– R&G, Chapter 4 (paras 4.1-4.73)

– Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

– Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

– Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)[1953] 1 QB 401 (R&G(C)[4.3])

– *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

– *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

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Course Description• The law relating to contracts is one of the pillars of the common law system. An

understanding of the basic elements of contract law is thus a critical pre-requisite for the study of a number of later subjects, including Conveyancing, Commercial Transactions and Industrial Law. The course aims to provide students with an understanding of the basic principles of contract law which apply to nearly all contracts. In fulfilling this aim, the course focuses primarily on a study of relevant case law and statute law. The course covers the elements of formation of contracts, terms of a contract, matters affecting consent to a contract, discharge of contracts, remedies, and third party rights.

• Special principles that apply to specific types of contracts are dealt with in later courses.

• The objectives of the course are:

(a) to provide students with an understanding of basic principles of contract law; and

(b) to develop in students an ability to analyse fact situations and correctly identify the relevant principles of contract law that are applicable to the resolution of problems raised by particular factual situations.

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Lectures, Assessment, Texts• Lectures

– See course outline p4

– Weekend schools 1 and 2 – see course outline pp5-6

• Assessment

– See course outline p1-2

• Assignment: 20% - Due 5 January 2017

• Exam: 80%

• Reading, texts and materials

– See course outline p3

• Radan, Gooley & Vickovich, Principles of Australian Contract Law, 3rd ed. LexisNexis, 2013 (R&G)

• Radan, Gooley & Vickovich, Principles of Australian Contract Law, Cases and Materials, 3rd ed. LexisNexis, 2014 (R&G(C))

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Lectures, Assessment, Texts• Tips on how to study this course

– This course is heavily based upon common principles as opposed to statutes. Therefore reading the cases and thinking about the cases is essential. The principles that you will need to apply are contained in these decisions. You will also need to be able to distinguish the facts in these cases from those in the problems.

– The assessment will largely be problem based:

Using: I.R.A.C: http://sydney.edu.au/law/learning_teaching/legal_writing/problem_questions.shtml

Using: M.I.R.A.T: http://www.law.unsw.edu.au/current-students/surviving-thriving/hitting-books/exam-preparation

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Introduction

Aims and Objectives

At the end of this lecture students should understand the following:

(a) the definition of contract;

(b) the sources of contract law;

(c) the various classifications of contracts;

(d) the basic principles relating to answering problem questions;

(e) the nature of an offer and the circumstances in which an offer is made

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IntroductionThe definition of contract

• The law of contract is concerned with four main topics:

(1) the making of the contract;

(2) the content, effect and enforceability of the terms of the contract

(3) the performance and discharge of the contract; and

(4) rights and remedies in the event of default in the performance of the contract.

• More simply, the law of contract is concerned with the formation and enforcement of agreements which are recognised as contractual in nature.

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IntroductionThe definition of contract

• The word contract comes from the Latin “contrahare” which means ‘to draw together’

• Definitions of contract fall into two types:

– Those that see it in terms of a promise or promises

– Those that see it in terms of an agreement

• Both of these types of definition have problems

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IntroductionTypes of contract

• This is sometimes called a unilateral contract – where the offeror makes a promise in exchange for some act (say, payment of money for a service).

• This is contrasted with a bilateral contracts in which two parties exchange promises to do things.

• In a unilateral contract, the offeror is bound when the act is performed, but the offeree cannot be forced to act. In a bilateral contract, both parties can be forced to act – i.e. to fulfil their promises.

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IntroductionTypes of contract

• Examples of bilateral contracts are present in everyday life. You enter this type ofagreement every time you make a purchase at a store, order a meal at arestaurant, or receive treatment from a doctor In each circumstance, you'vepromised a certain action to another person or party in response to that person orparty's action.

• There are examples of unilateral contracts in everyday life as well: one of the mostcommon is a reward contract. For example if you have lost your dog. You place anadvertisement in the newspaper or online offering a $100 reward to the personwho returns your missing dog. By offering the reward, you're offering a unilateralcontract. You promise to pay should anyone fulfil the obligation of returning yourdog. You're the only person who has taken any action in this contract, as no one isspecifically responsible or obligated to finding your dog passed on this interaction.

• Another common example of a unilateral contract is with insurance contracts. Theinsurance company promises it will pay the insured person a specific amount ofmoney in case a certain event happens. If the event doesn't happen, the companywon't have to pay.

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IntroductionSources of contract law

• In Australia, contract law is largely governed by the common law, developed domestically, and inherited from England, with some legislative additions:

– Australian Consumer Law (as a Schedule to the Competition and Consume Act 2010 (Cth))Sale of Goods Act 1923 (NSW)

– Contracts Review Act 1980 (NSW)

– Civil Liability Act 2002, (NSW)

• Is there a flavour to Australian contract law? – See Carter [1-17]

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IntroductionThe role of contracts

• According to Friedman, contract functions as a legal instrument for the freecirculation of goods and labour, thereby signalling the movement away fromsocieties characterized by status and immobility.

• First, it is widely accepted that contract law aims to facilitate exchange.Indeed, as Lord Irvine has put it, the commercial law of contract serves as anengine for trade. Exchange is not normally compulsory; but, for those whowish to exchange, contract law attempts to put in place a secured frameworkthat facilitates dealing with a degree of confidence and trust. Contract law laysdown the transactional ground rules; contractors know where they stand;whether parties deal with friends or strangers, at home or away, they trade inthe shadow of the sanctioning apparatus of the law. To this extent, contractlaw channels parties towards performance.

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• Secondly, it is recognized that contract law has a protective function. At onelevel, this function is relatively uncontroversial, the idea being that contractlaw must be compatible with the public interest in general. Thus, parties mustnot be encouraged or permitted to draw on the sanctioning apparatus ofcontract law where their agreement is illegal or, in some other sense, isantithetical to the public interest. More controversial however, it is arguablethat the intent underlying much of the modern law is to protect parties who arerelatively vulnerable. Certainly it is widely agreed that one of the distinctivefunctions of the modern law of contract is to put in place a protective regimefor routine consumer dealing.

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• Secondly, it is recognized that contract law has a protective function. At onelevel, this function is relatively uncontroversial, the idea being that contractlaw must be compatible with the public interest in general. Thus, parties mustnot be encouraged or permitted to draw on the sanctioning apparatus ofcontract law where their agreement is illegal or, in some other sense, isantithetical to the public interest. More controversial however, it is arguablethat the intent underlying much of the modern law is to protect parties who arerelatively vulnerable. Certainly it is widely agreed that one of the distinctivefunctions of the modern law of contract is to put in place a protective regimefor routine consumer dealing.

• Thirdly, where contracts give rise to disputes, it is accepted that one of theobjectives of contract law is to put in place machinery for the resolution ofsuch disputes.

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IntroductionThe life of a contract

• Negotiation?

• Formation

• Execution

• Completion

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Formation

Formation of contract

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Formation


• Formation of contract is classically concerned with a number of elements or issues:

– Offer

– Acceptance

– Certainty and completeness

– Consideration

– Intention to create legal relations

– The requirement of writing

– Capacity (not assessed)

– Legality (not assessed)

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FormationFreedom of contract

• Capacity – Who can enter into a contract?

• Illegality and restraints of trade

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FormationCapacity – Who can enter into a contract? (not assessed)

• For a contract to exist the parties must have contractual capacity. There are certain persons and classes of persons that lack the capacity to enter into a contract with the consequence (normally) that resulting contracts will not be enforceable against them. Lack of capacity now often stems form a fear of vulnerability to exploitation. This area has become more complex as a result of statutory developments at a state level (calls for national law reform have not yet met with success) which result in a variety of different rules.

• Mental disorder

• Intoxication

• Bankrupts

• The Crown

• Minors

• Companies

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Mental disorder

• A contract is voidable at the option of a party who, as a result of mental disorder, is unable to understand the nature of the contract being made -provided that the other party knew, or ought to have known, of that person’s disability. The party seeking to withdraw from the contract has the onus of proving both these requirements:

(a) that they were suffering from such a disability and

(b) that the other party was - or ought to have been - aware of it.

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Intoxication

• A contract is voidable at the option of a party who, as a result of intoxication, is unable to understand the nature of the contract being made - provided that the other party knew, or ought to have known, of that person’s disability. The party seeking to withdraw from the contract has the onus of proving both these requirements.

Bankrupts

• A bankrupt person may make a contract but unprofitable contracts made prior to bankruptcy may be disclaimed by the trustee. Legislation may also restrict the nature of contracts a bankrupt person may enter into (for example, the extent of credit they may obtain) and makes entering into some types of contract without disclosure of bankruptcy an offence

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The Crown

At common law proceedings could not be taken against the Crown, but legislation has removed this immunity in most cases. Key limitations include:

• the power of the Crown to contract may be restricted by statute

• Crown is not permitted to fetter the future exercise of its discretionary powers

• A parliamentary appropriation is needed to pay damages

Minors

• Both the common law and statute operate to restrict the capacity of minors to contract. The existing mix of common law and multiple different state legislative rules in relation to the capacity of minors has rendered the assessment of the contractual capacity of minors exceedingly complex.

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FormationCapacity – Who can enter into a contract?

Companies

• At common law a company only had contractual capacity to the extent it was given such capacity by its constitution – parties to a contract with the company were taken to have been aware of any restrictions contained in the constitution.

• Section 124 of the Corporations Act 2001 (Cth) gives a company the same legal capacity as ‘an individual’ including the power to make an agreement and s 125 effectively provides that the performance of an act – including entry into an agreement – by a company will not be invalid merely because it is beyond the power of the company’s constitution.

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FormationIllegality and public policy (not assessed)

• Illegality is a highly complex area of contract law. It deals with both criminal conduct, conduct prohibited by statute (even if not criminal) and conduct regarded as contrary to public policy.

• In some cases it will be simple to determine whether or not an illegal contract exists and will be rendered void; for example, a contract whereby A agrees to pay B $1m if B kills C will be clearly be considered illegal and void. In other cases it will be more difficult. For example, will a transport contract be rendered illegal if the car used in the transport speeds while on its journey? In some cases a contract tainted by incidental illegality might be considered unenforceable rather than void so that proprietary interests might pass notwithstanding the unlawful conduct.

• Statutory illegality - this encompasses contracts directly prohibited by statute (e.g., cartel contracts), contracts entered into for an illegal purpose (e.g., to kill), contracts performed illegality (e.g., speeding whilst driving in the course of performing a contract) and contracts otherwise made void by statute (e.g., certain unfair terms in consumer contracts). Different rules and consequences attach to each.

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FormationIllegality and public policy (not assessed)

• Common law illegality and contracts which are contrary to public policy - this encompasses a broader range of conduct, including contracts prejudicial to the administration of justice, contracts promoting corruption in public life, contracts prejudicing the status of marriage, contracts promoting sexual immorality and contracts in restraint of trade. It is not always easy to classify these types of contract and what constitutes conduct that is contrary to 'public policy' varies with the prevailing morality of the relevant jurisdiction.

• Where conduct is classified as illegal or contrary to public policy it is generally held to be unenforceable; there are, however, some exceptions to that rule and, in some cases, it may be possible to sever the offending terms and enforce the remainder of the contract.

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Offer



– R&G, Chapter 4 (paras 4.1-4.73)

– Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])


– Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

– *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

– *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

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Offer


• The Fact of Agreement: Offer and Acceptance

• In cases where the existence of an agreement is in question, the traditionalresolving method for it is to apply the rules of offer and acceptance.

• One looks at the negotiations between the parties and seeks to establish whetherone of them has made an offer to the other and whether the latter hassubsequently accepted the offer (we will discuss acceptance next week).

• However, in many cases, whether an agreement exists will not be in dispute.Thus, if A and B execute a detailed document prepared by their lawyers, the factof agreement will rarely be disputed by either of them. Nor will it be realistic to talkof such an agreement as being the product of one of them making an offer, whichthe other accepted.

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OfferFormation of contract


• Offer and acceptance analysis will work reasonably well in situations where therehave been negotiations between A and B which involve communications betweenthem that have reached a point where one of them claims an agreement has beenreached and the other disputes this. In such cases one simply goes through thecommunications in chronological order in search of an offer, followed by anacceptance of that offer. unless both an offer and acceptance are found to haveoccurred, there is no agreement.

• Principles of offer and acceptance help us determine:

– When a contract was entered into. This can be important if there are time limits on performance.

– Where a contract was entered into. This can be important if there is a dispute as to which jurisdiction governs a contract.

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• Whether an agreement has been entered into is determined objectively (asopposed to subjectively):

“The general principles are not in doubt. Whether there was a binding contractbetween the parties and if so, upon what terms depends upon what they haveagreed. It depends not upon their subjective state of mind, but upon aconsideration of what was communicated between them by words or conduct, andwhether that leads objectively to a conclusion that they intended to create legalrelations and had agreed upon all the terms which they regarded or the lawrequires as essential for the formation of legally binding relations.

Even if certain terms of economic or other significance have not been finalised, anobjective appraisal of their words and conduct may lead to the conclusion that theydid not intend agreement of such terms t0 be a precondition to a concluded andlegally binding agreement.”

– RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Company KG (UK Productions) [2010] 3 All ER 1

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• So what is an offer?

'An offer is a statement of the terms upon which the offeror is prepared to be bound if acceptance is communicated while the offer remains alive.‘

– Nielsen v Dysart Timbers Limited [2009] 3 NZLR 160 at 168.

• In determining whether an offer has been made 'the correct approach is to ask whether [the offeree] (having the knowledge of the relevant circumstances which [the offeree] had), acting reasonably would understand that [the offeror] was making a proposal to which he intended to be bound in the event of an unequivocal acceptance‘

– Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd (20l0) EWCA Civ 1331 at [25]

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• For a valid offer to exist, it must be communicated to the offeree, or his or her agent, by the offeror or his or her agent. If the offeree learns of the offer from an unauthorised person, there is no offer for that offeree to accept: Banks v Williams (1912) 12 SR (NSW) 3S2 at 390-l. Once the offer is communicated to the offeree, he or she has the power to turn it in to an agreement by accepting it.

• What is central to an offer is the will or intent of the offeror to be bound in contract by the terms of the offer. A statement that lacks such will or intent is not an offer.

• In some situations such a statement will simply be:

– the supply of information

– an invitation to treat

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• The Fact of Agreement: Offer v Invitation to treat

• Carter defines an invitation to treat as 'a request to others to make offers or to engage in negotiations with a sale in mind'.

“[In cases] in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let ... there is no offer to be bound by any contract. Such advertisements are offers to negotiate - offers to receive offers - offers to chaffer, as, I think, some learned judge in one of the cases has said.”


• So if it is an invitation to treat, it is not an offer capable of acceptance and therefore there is no contract.

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• So when is it an invitation to treat?

• In many cases the issue that will resolve a dispute between persons involved in litigation before the courts is whether a statement made by one to the other is an offer or an invitation to treat.

• See Gibson v Manchester City Council [979] 1 All ER 972 contrasted with Storer v Manchester City Council [l974] 3 All ER 824 both cases where council, resolved to allow tenants of council housing to buy their properties. The council sent a letter to in which it stated that it “may be prepared” to sell to the premises that the tenant was leasing from the council. The letter stipulated the price and terms and conditions upon which a sale would take place. The letter then invited the tenant “to make a formal application to buy” by completing the enclosed application form.

• Did this constitute and offer or an invitation to treat?

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• ln Harvey v Facey [1893] AC 552, Harvey telegraphed to Facey saying: “Will you sell us Bumper Hall Pen?”

• Facey replied: “Lowest price for Bumper Hall Pen, £900.”

• Harvey replied that he agreed to buy the property for £ 900 and asked that the title deeds be forwarded to him. Facey refused, claiming there was no contract of sale. The question before the court was whether Facey’s reply was an offer or simply the supply of information.

• The House of Lords ruled in favour of Facey saying the reply was merely the supply of information: “the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at the lowest price.”

• Harvey v Facey is indicative of the view that where property, such as land, is of considerable value, the mere statement of price at which a person is prepared to

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• Harvey v Facey is indicative of the view that where property, such as land, is of considerable value, the mere statement of price at which a person is prepared to sell, is usually not an offer. However, in Pattison v Mann (1975) 13 SASR 34 the Court conceded that such a statement could be an offer in some cases, but went on to say that very often the absence of reference to matters which one would normally expect to be the subject of negotiations is a strong indication that no concluded agreement has been reached by a purported acceptance of such a statement.

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• What about unusual situations that are not strictly letters which say “I offerV.” ?How can you tell if they are offers or merely invitations to treat?

– Promotional material/advertisements: Carlill v Carbolic Smoke Ball Co [1893] 1QB 256 (R&G(C)[4.2])

– Self service at shops: Pharmaceutical Society of Great Britain v Boots CashChemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

– Auctions: *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

– Tenders: *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195(R&G(C)[4.5].

– Standing offers

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Offer

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

• In June 1946 the Commonwealth Government announced a subsidy scheme to maintain the price structure of wool in the wake of the Second World War. It said that it would pay a subsidy to manufacturers of wool who purchased and used that wool for local manufacture after 30 June 1946. The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.

• The plaintiff argued that a contract had been formed by the offer of a subsidy by the Government that offer being accepted by the doing of an act by the plaintiff, that is, buying the wool.

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OfferAustralian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

Held:

• There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. The Court stated that in cases such as this:

‘V it is necessary, V that it should be made to appear that the statement or announcement which is relied on as a promise [here the subsidy statement] was really offered as consideration for the doing of the act, and that the act [buying and using the wool as directed] was really done in consideration of a potential promise inherent in the statement or announcement.’

• One has to look at the context in which the documents arose - they cannot be seen as a standing offer - capable of acceptance by the act of purchase. The subsidy was not a request, invitation or an inducement to purchase wool. There was nothing to suggest that the subsidy and purchase of wool were related, no quid pro quo.

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• There must be a relationship of quid pro quo between the statement and the Act. Here there was no promise offered in consideration of doing an act. The doing of the act must be based upon the promise - not merely coinciding with it. E.g., if A says to B "I will pay you $100 on your arrival in Sydney" B could not necessarily enforce the promise on arrival. It may be that B was planning to go to Sydney anyway and did not act in response to the offer.

• Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that ‘payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other.’

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• The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry. In this respect the Court noted that ‘It is of the essence of contract V that there is a voluntary assumption of a legally enforceable duty. V it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. V’

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• The Court criticised the use of the word unilateral in respect of this type of contracting, but commented that the alleged contract here was of the promise for an act type of contract.

• Appeal to the Privy Council was dismissed.

• [NB. To what extent was the historical situation (a Government trying to cope with economic difficulties in the aftermath of war) relevant to the decision in this case?]

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OfferPromotional materials

• The general rule is that circulars catalogues and advertisements setting out price lists or promoting the same of products are invitations to treat.

• However, the general rule will not apply if it is clear from the advertisement of circular that the seller is limiting her liability to the amount of stock on hand.

• In Spencer v Harding (1870) LR 5 CP 561 a circular stating “We are instructed to offer to trade for saleV” goods, was held to be an invitation to treat.

• In Leftowitz v Minneapolis Surplus Store 86 NW 2d 689 (1957), the store placed a newspaper which read: “l Black Lapin Stole . . . Beautiful, worth $139.50 . . . $1.00 First come first served.” Lefkowitz was the first to present, but the store refused to sell it to him on the basis of a house rule that the advertisement could only be taken up by women. Lefkowitz sued the store for damages for breach contract.

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• “[W]here the offer is clear definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract. ... [A] newspaper advertisement relating to the purchase and sale of [a product] may constitute an offer, acceptance of which will consummate a contract and create an obligation in the offeror to perform according to the terms of the published offer. Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances. . . . We are of the view on the facts before us that the offer by the [Great Minneapolis Surplus Store] of the sale of the Lapin fur was clear, definite, and explicit, and left nothing open negotiation.”

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• The rationale is often argued that if these ads constituted an offer then the vendors obligation to provide stock at the advertised price could be limitless.

• This gives rise to the argument that when the advertisement limits the stock to be sold indicates an offer – because it is limited in its nature.

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Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

• The Carbolic Smoke Ball Co. made a product called the "smoke ball". It claimed to be a cure for influenza and a number of other diseases, in the context of the 1889–1890 flu pandemic. The smoke ball was a rubber ball with a tube attached. It was filled with carbolic acid (or phenol). The tube would be inserted into a user's nose and squeezed at the bottom to release the vapours. The nose would run, ostensibly flushing out viral infections.

• The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13, 1891, claiming that it would pay £100 to anyone who got sick with influenza after using its product according to the instructions provided with it.

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£100[1] reward will be paid by the Carbolic Smoke Ball Company to any person who

contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after

having used the ball three times daily for two weeks, according to the printed directions

supplied with each ball.

£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as

preventives against this disease, and in no ascertained case was the disease contracted by those

using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy in

the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address:

“Carbolic Smoke Ball Company”, 27, Princes Street, Hanover Square, London.

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• Mrs Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used it three times daily for nearly two months until she contracted the flu on 17 January 1892.

• She claimed £100 from the Carbolic Smoke Ball Company. They ignored two letters from her husband, a solicitor. On a third request for her reward, they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball's efficacy, but "to protect themselves against all fraudulent claims", they would need her to come to their office to use the ball each day and be checked by the secretary.

• Mrs Carlill sued in contract. She argued that the advertisement and her reliance on it was a contract between the company and her, so they ought to pay. The company argued it was not a serious contract. The issues that arose included: whether the advertisement was an offer, whether it had ben accepted and whether there was consideration.

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Held: There was an agreement and the defendant had to pay the reward

Bowen LJ:

• The necessary will or intention to make the advertisement an offer rather than “a mere puff” was to be found in the fact that the company had set up a special bank account to meet possible claims as a sign of its sincerity in the matter.

• It was only necessary for the person to the offer was made to follow the indicated method of acceptance – if the offeror indicates or implies that it will be sufficient to act on the proposal without communicating acceptance, performance of the condition is sufficient acceptance.

• But what if there was no bank account?

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1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a mere sales puff.

2. It is quite possible to make an offer to the world.

3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance.

4. Whilst there may be some ambiguity in the wording this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls.

5. The defendants would have value in people using the balls even if they had not been purchased by them directly.

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• Carter argues that the result may not have differed [3-08] because the public may have still understood it to be an offer (and the Court may have held that the public would so understand).

• So how would this be distinguished from ordinary situations.

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• Generally, a display of priced goods in a shop, or in a shop window is an invitation to treat. The customer makes an offer which retailer either accepts or rejects. A significant authority on this point is Pharmaceutical society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401.

• Nevertheless, the principle in this case has not prevented a display from occasionally being held to constitute an offer. In Chapleton v Barry Urban District Council [1940] 1 KB 532, a display of deck chairs with a sign indicating the fee for their hire was held to constitute an offer.

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Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

• Section 18 of the Pharmacy and Poisons Act 1933 (UK) stipulated that certain drugs could only be sold to members of the public if the sale was “effected by or under the supervision of, a registered pharmacist.” Boots Cash Chemists operated a self-service pharmacy. When one of its customers selected to purchase drugs covered by the legislation, they proceeded to a checkout desk where a registered pharmacist handled the transaction. The registered pharmacist was also authorised by the pharmacy to prevent any person from removing any drugs from the premises. The Pharmaceutical Society brought an action against Boots Cash Chemists claiming that this method of selling the drugs breached s 18.

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• In determining whether the legislation was breached, the Court of Appeal focused on whether the display of drugs was an offer or an invitation to treat. The Court ruled that the display was an invitation to treat, with the consequence that the customer made an offer at the time he or she presented at the checkout counter as willing to buy the relevant drugs. A registered pharmacist then accepted the offer.

• In such circumstances, the contract was entered into under the supervision of a registered pharmacist and thus there was compliance with the legislation.

• Therefore the principle adopted is that no offer is made by the display of the goods

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Somervell LJ noted that in relation to:

"an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed."

• Were it otherwise, “once an article has been placed in the receptacle the customer himself is bound and he would have no right without paying for the first article to substitute an article which he saw later of the same kind and which he perhaps preferred.”

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• This reasoning has been criticised. Because if the shopkeeper was the offeror (making the offer by displaying the goods), wouldn’t acceptance take place when the goods are presented for purchase at the counter, rather than when they are put in the basket?

• Is this rule realistic in big stores where it is not the owner deciding whether to accept the offer to purchase? Does a junior sales clerk have the power to accept and enter in to the contract?

• Would it make a difference if there was not legislation involved in this case?

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OfferAuctions

• It is well established that when an auctioneer put up an item for sale, she is not making an offer to sell to the highest bidder, but inviting offers from the bidder.

• By making a bid, the bidders are making an offer, which is accepted by the auctioneer when the hammer falls.

– Payne v Cave (1789) 100 ER 502

• This is reinforced by the Sale of Goods Act 1923 (NSW), s 60.

• This means that the auctioneer does not have to accept the highest bid or any bid, unless the auctioneer has stated that she will do so.

– AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454

• It also means that a bid can be retracted before I the hammer falls.

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OfferAuctions

• BUT, in the case of an auction without a reserve, there is conflicting authority as to what the position is:

– In AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 it was held that the principle in Cave v Pane applies irrespective of whether the auction is with or without reserve

– However, the UK Court of Appeal has held otherwise in Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4]), saying that the holding of the auction was the offer and that it was accepted by the bid.

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OfferAuctions

*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

• Davies, trading as an auctioneer, conducted an auction of a couple of machines, each worth over £14,000. The auction was conducted without a reserve price.

• After unsuccessfully seeking bids (£3,000 to £5,000), the auctioneer, then asked for bids for the machines. The only bid was made by Barry who offered £200 for each machine. The auctioneer refused to accept the bids.

• The machines were subsequently sold for £700 each. Barry successfully sued the auctioneer for damages for breach of contract on the basis that, as the highest bidder, he was entitled to purchase the two machines for £400. The auctioneer appealed.

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OfferAuctions


Held

• The court upheld the trial judge’s decision that the auctioneer was liable.

• They approved the dicta of the earlier decision of Warlow v Harrison where it was held that although there is no contract between the vendor and the buyer, the auctioneer becomes liable to the highest bidder for damages for breach of contract.

“We cannot distinguish the case of an auctioneer putting up property for sale upon such a condition from the case of the loser of property offering a reward, or that of a railway company publishing a time table stating the times when, and the places to which, the trains run. It has been decided that the person giving the information advertised for, or a passenger taking a ticket, may sue as upon a contract with himV

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OfferAuctions


VUpon the same principle, it seems to us that the highest bona fide bidder at an auction may sue the auctioneer as upon a contract that the sale shall be without reserve. We think the auctioneer who puts the property up for sale upon such a condition pledges himself that the sale shall be without reserve; or, in other words, contracts that it shall be so; and that this contract is made with the highest bona fide bidder; and, in case of a breach of it, that he has a right of action against the auctioneer.”

• Here it was held that the auctioneer was liable for breach of contract.

• But what is the consideration for the auctioneer’s promise to sell the property? What is the bidder giving up in return for the promise? The Court said that it was the detriment suffered by the bidder because his bid can be accepted unless withdrawn.

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OfferAuctions


• Also, if the bid was revocable, what does that say about an agreement with the auctioneer. Is that really consideration?

• Also, if this is accepted as Australian law, what does that say about an auction with a reserve, once the bids have reached the reserve? Does the auctioneer have to accept them?

• This case has been criticised, but not overruled, and the reasoning from Warlow v Harrison upon which this case was based has been applied in Victoria in Ulbrick v Laidlaw [1924] VLR 274.

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OfferTenders

• Tenders are a little similar to auctions, but a key difference is that in most tenders, each bidder makes only one bid, and with knowledge of the other tenderers.

• Therefore in a tender, it is the tenderer (the party who submits a tender) not the person calling for tenders (the invitor). Once the tender is made, the invitor can choose to accept or reject the tender.

– Meudell v Harvella Investments v Mayor of Bendigo (1900) 26 VLR 158

• The invitor can accept or reject any tender, but if she has said that she will accept the best tender, she must do so and a contract arises with the best tenderer.

• An exception to this is process contracts. A process contract arises in certain circumstances where an invitation to tender creates and offer and the tender is the acceptance

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OfferTenders

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

• The council, which owned an airport, called for tenders to operate pleasure flightsfrom the airport. Blackpool & Fylde Aero Club (the club) was the existing operatorwhose contract was coming to an end. It was also one of the closed group ofseven people invited to tender for a new contract. The invitation to tender wasdetailed and specific in the procedure for, and form of, the submission of tenders.The reason for this was that the council wanted to ensure that the committeeconsidering the tenders was not in a position to know which tender had beensubmitted by which tenderer.

• One of the clauses in the call for tenders stated that “[n]o tender which is receivedafter the last date and time specified shall be admitted for consideration.” The clubsubmitted its tender on time and in accordance with the required procedure andform. However, due to an administrative error by the council, the tender was notconsidered. This meant that the club lost any chance of being the successfultenderer.

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OfferTenders


• The club sued the council for damages for breach of contract.

• Did the call for the tenders constitute an offer to consider them all?

• Generally an invitation is no more than an offer to receive tenders. But in certaincircumstances it could give rise to a contractual obligation, either from:

– The express words used in the tender

– The circumstances surrounding the sending of the invitation

– Both

• Here it was both becauseV

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OfferTenders


• Here the pertinent factors indicating a contract were held to be:

– The Council approached a small, select group of tenderers.

– They were all connected with the airport

– The plaintiff had held the concession for eight years and had won three previous tenders

– The Council was obliged to comply with its standing orders and owed a duty to ratepayers to act prudently in managing its financial affairs.

– There was a clear intention on the part of both parties that all timely tenders would be considered.

– Special envelopes were supplied to each tenderer to preserve anonymity.

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OfferTenders


• How would the ordinary person reading the tender document construe it?

– The Council might or might not any particular tenderVbut if it did consider any tender that was submitted before the deadline, it would consider all such tenders.

• Although contracts should not be lightly implied Bingham LJ was satisfied here that both parties intended to create contractual relations.

• Stocker LJ said that this one of the fairly rare exception to the rule about tenders.

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Next weekV..• Acceptance

– Acceptance generally

• Text: Radan & Gooley, Chapter 4 (paras 4.74-4.121)

• R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

• Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

• Brinkibon v Stahag Stahl [1983] 2 AC 34 (R&G(C) [4.11])

• Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

– Alternatives to Offer & Acceptance

• Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965 (R&G(C) [4.13])

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Next weekV..• Acceptance

– Termination of Offers

• Stevenson, Jacques and Co v McLean (1880) 5 QBD 346 (R&G(C) [4.6])

• Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])

• Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228 (R&G(C) [4.8])

• Certainty and Completeness

• Text: Radan & Gooley, Chapter 5

• Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C) [5.2])

• Whitlock v Brew (1968) 118 CLR 445 (R&G(C) [5.3])

• United Group Rail Services Limited v Rail Corporation New South Wales[2009] NSWCA 177 (R&G(C) [5.4])

• Masters v Cameron (1954) 91 CLR 353 (R&G(C) [5.5])

• Meehan v Jones (1982) 149 CLR 571

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