Formation of a Formation of a contractcontract

A contract is an A contract is an agreement that is agreement that is

enforceable at enforceable at law.law.

Characteristics of a ContractCharacteristics of a Contract

1.1. There will be a promise or There will be a promise or promises.promises.

2.2. They will be made by “parties They will be made by “parties to the contract”.to the contract”.

3.3. They will create an obligation.They will create an obligation.4.4. That obligation will be That obligation will be

enforceable at law.enforceable at law.5.5. Often found in negotiations, Often found in negotiations,

rather than a formal document.rather than a formal document.

OFFER/ACCEPTANCE OFFER/ACCEPTANCE ANALYSISANALYSIS

OFFEROFFER++ == AGREEMENTAGREEMENT

ACCEPTANCEACCEPTANCEINTENTIONINTENTION

CONSIDERATIONCONSIDERATIONCAPACITYCAPACITY

INTENTION TO CREATE LEGAL INTENTION TO CREATE LEGAL RELATIONSRELATIONS

““To create a contract there To create a contract there must be a common must be a common intention of the parties to intention of the parties to enter into legal enter into legal obligations, mutually obligations, mutually communicated expressly communicated expressly or impliedly”or impliedly”

Atkin LJ in Atkin LJ in Rose & Frank CoRose & Frank Co v v JR Crompton & Bros LtdJR Crompton & Bros Ltd [1923] 2 KB 261 at 293 [1923] 2 KB 261 at 293

Rebuttable presumptionsRebuttable presumptions

In social and domestic agreements there is In social and domestic agreements there is a presumption against legal obligationsa presumption against legal obligations BalfourBalfour v v BalfourBalfour [1919] 2 KB 571 [1919] 2 KB 571

CohenCohen v v CohenCohen (1929) 42 CLR 91(1929) 42 CLR 91 JonesJones v v PadavattonPadavatton [1969] 1 WLR 328 [1969] 1 WLR 328

The presumption is rebuttableThe presumption is rebuttable MerrittMerritt v v MerrittMerritt [1970] 1 WLR 1211[1970] 1 WLR 1211 WakelingWakeling v v RipleyRipley (1951) 51 SR (NSW) 183(1951) 51 SR (NSW) 183

BalfourBalfour v v BalfourBalfour““There are agreements between parties which There are agreements between parties which do not result in contracts within the meaning of do not result in contracts within the meaning of that term in our law. The ordinary example is that term in our law. The ordinary example is where two parties agree to take a walk together, where two parties agree to take a walk together, or where there is an offer and acceptance of or where there is an offer and acceptance of hospitality. Nobody would suggest in ordinary hospitality. Nobody would suggest in ordinary circumstances that those agreements result in circumstances that those agreements result in what we know as a contract, and one of the most what we know as a contract, and one of the most usual forms of agreement which does not usual forms of agreement which does not constitute a contract appear to me to be the constitute a contract appear to me to be the arrangements which are made between husband arrangements which are made between husband and wife…they are not contracts because the and wife…they are not contracts because the parties did not intend that they should be parties did not intend that they should be attended by legal consequences.”attended by legal consequences.”

Atkin LJ at 578Atkin LJ at 578

Rebuttable presumptionsRebuttable presumptions

In In business or commercial business or commercial agreementsagreements, there is a rebuttable , there is a rebuttable presumption that the parties presumption that the parties did did intendintend to create legal obligations to create legal obligations CarlillCarlill v v Carbolic Smoke BallCarbolic Smoke Ball Rose & Frank CoRose & Frank Co v v Crompton & Bros LtdCrompton & Bros Ltd

[1925] AC 445[1925] AC 445 Honour clause Honour clause

PresumptionsPresumptions

ErmogenousErmogenous v v Greek Orthodox Greek Orthodox CommunityCommunity of SA Incof SA Inc (2002) 209 CLR 95(2002) 209 CLR 95

Use of presumptions of limited value Use of presumptions of limited value Intention to create legal relations is Intention to create legal relations is

always a matter to be provedalways a matter to be proved Objective testObjective test

OFFER/ACCEPTANCE OFFER/ACCEPTANCE ANALYSISANALYSIS

OFFEROFFER++ == AGREEMENTAGREEMENT

ACCEPTANCEACCEPTANCEINTENTIONINTENTION

CONSIDERATIONCONSIDERATIONCAPACITYCAPACITY

OfferOffer

““the indication by one the indication by one person to another of his person to another of his or her willingness to or her willingness to enter into a contract enter into a contract with that person on with that person on certain terms”certain terms”

Carter and Harland, “Contract Law in Australia” 4Carter and Harland, “Contract Law in Australia” 4thth edn p28 edn p28

Essential features of an offer:Essential features of an offer:

The offeror must The offeror must intend to be boundintend to be bound by the by the offeroffer Distinguish from request for information or Distinguish from request for information or

invitation to treatinvitation to treat The offer must be The offer must be communicatedcommunicated to the to the

offereeofferee The offer may be made to The offer may be made to one personone person, a , a class class

ofof personspersons, or the , or the whole worldwhole world The offer must contain enough information The offer must contain enough information

((certaintycertainty) to allow a binding contract to come ) to allow a binding contract to come into existenceinto existence

Intention to be boundIntention to be bound

An offer is An offer is not:not: A request for the supply of A request for the supply of

informationinformation HarveyHarvey v v FaceyFacey [1893] AC 552[1893] AC 552

An invitation to treatAn invitation to treat Pharmaceutical Society of Great BritainPharmaceutical Society of Great Britain

v v Boots Cash Chemists (Southern) LtdBoots Cash Chemists (Southern) Ltd [1953] 1QB 401. [1953] 1QB 401.

GibsonGibson v v Manchester City CouncilManchester City Council [1979] [1979] 1AllER 972 1AllER 972

Grainger & SonGrainger & Son v v GoughGough [1896] AC 325[1896] AC 325

Harvey Harvey v v FaceyFacey

““the mere statement of the the mere statement of the lowest price at which the vendor lowest price at which the vendor would sell contains no implied would sell contains no implied contract to sell at the lowest contract to sell at the lowest price.”price.”

Lord Morris at 556Lord Morris at 556

GraingerGrainger v v GoughGough

““transmission of such a price list does not transmission of such a price list does not amount to an offer to supply an unlimited amount to an offer to supply an unlimited quantity of the wine described at the price quantity of the wine described at the price named, so that as soon as an order is given named, so that as soon as an order is given there is a binding contract to supply that there is a binding contract to supply that quantity. If it were so, the merchant might quantity. If it were so, the merchant might find himself involved in any number of find himself involved in any number of contractual obligations to supply wine of a contractual obligations to supply wine of a particular description which he would be particular description which he would be quite unable to carry out, his stock of wine of quite unable to carry out, his stock of wine of that description being necessarily limited.”that description being necessarily limited.”

Lord Herschell at 334Lord Herschell at 334

Examples ofExamples ofInvitations to TreatInvitations to Treat

advertisements/circularsadvertisements/circulars price listsprice lists displays of goods in shopsdisplays of goods in shops calls for bids at auctions, calls for bids at auctions,

andand calls for tenders.calls for tenders.

CarlillCarlill v v Carbolic Smoke BallCarbolic Smoke Ball[1893] 1 QB 256[1893] 1 QB 256

Distinguish offer from invitation to Distinguish offer from invitation to treat by looking at intention of treat by looking at intention of offerorofferor

Offer can be made to world at largeOffer can be made to world at large Unilateral contract – communication Unilateral contract – communication

of acceptance not requiredof acceptance not required Consideration can equal Consideration can equal

detriment/effortdetriment/effort

Text of ad: Text of ad: http://www.carbolicsmokeball.co.uk/

CommunicationCommunication

Offer must be Offer must be communicatedcommunicated to to offereeofferee

‘‘overheard’ offer or unintended overheard’ offer or unintended communication is not an offercommunication is not an offer BanksBanks v v WilliamsWilliams (1912) 12 SR (NSW) (1912) 12 SR (NSW)

382382

Offeree may be a particular Offeree may be a particular person or class of persons or person or class of persons or

the whole worldthe whole world““It is also said that the contract is made with It is also said that the contract is made with all the world –that is, with everybody, and all the world –that is, with everybody, and that you cannot contract with everybody. It is that you cannot contract with everybody. It is not a contract made with all the world. There not a contract made with all the world. There is the fallacy of the argument. It is an offer is the fallacy of the argument. It is an offer made to all the world; and why should not an made to all the world; and why should not an offer be made to all the world which is to offer be made to all the world which is to ripen into a contract with anybody who ripen into a contract with anybody who comes forward and performs the condition? It comes forward and performs the condition? It is an offer to become liable to anyone who, is an offer to become liable to anyone who, before it is retracted, performs the condition, before it is retracted, performs the condition, and although the offer is made to the world, and although the offer is made to the world, the contract is made with that limited portion the contract is made with that limited portion of the public who come forward and perform of the public who come forward and perform the condition on the faith of the the condition on the faith of the advertisement.” advertisement.” Bowen LJ at 268, Bowen LJ at 268, Carlill Carlill v v Carbolic Smoke BallCarbolic Smoke Ball

All an offer All an offer needs is a “yes” needs is a “yes”

to make a to make a contractcontract

Termination of OffersTermination of Offers

1.1. AcceptanceAcceptance

2.2. Revocation Revocation

3.3. RejectionRejection

4.4. Condition in offer not fulfilledCondition in offer not fulfilled

5.5. Lapse of timeLapse of time

6.6. Death of a partyDeath of a party

RevocationRevocation

Must be Must be communicatedcommunicated PriorPrior to acceptance – to acceptance – ByrneByrne v v Van Van

TienhovenTienhoven (1880) 5 CPD 344(1880) 5 CPD 344 Communication can be by Communication can be by third third

partyparty or or conductconduct – – DickinsonDickinson v v DoddsDodds

(1876) 2 ChD 463(1876) 2 ChD 463 Not bound by statement to keep Not bound by statement to keep

offeroffer openopen for a specified time – for a specified time – DickinsonDickinson v v DoddsDodds

Unless Unless optionoption – – Goldsborough Mort v Goldsborough Mort v Quinn Quinn [1910] 10 CLR 674[1910] 10 CLR 674

RejectionRejection

Rejection terminates an offerRejection terminates an offer Counter offerCounter offer is a rejection is a rejection

HydeHyde v v Wrench Wrench (1840) 49 ER 132 (1840) 49 ER 132

Response is not always counter Response is not always counter offer/rejectionoffer/rejection

May be clarification or May be clarification or request for request for informationinformation Stevenson Jacques & CoStevenson Jacques & Co v v McLeanMcLean (1880) (1880)

5 QBD 3465 QBD 346

Stevenson Jacques Stevenson Jacques v v McLeanMcLean

““The form of the telegram is one of The form of the telegram is one of inquiry. It is not …[like] inquiry. It is not …[like] HydeHyde v v WrenchWrench…where the negotiation was …where the negotiation was at an end by the refusal of the at an end by the refusal of the [offeree’s] counter proposal. Here [offeree’s] counter proposal. Here there is no counter there is no counter proposal….There is nothing specific proposal….There is nothing specific by way of offer or rejection, but a by way of offer or rejection, but a mere inquiry, which should have mere inquiry, which should have been answered and not treated as a been answered and not treated as a rejection of the offer.”rejection of the offer.”

Lush J at 350Lush J at 350

ACCEPTANCEACCEPTANCE

A A FINALFINAL and and UNQUALIFIEDUNQUALIFIED assent to the terms of an assent to the terms of an offer made in the manner offer made in the manner specified or indicated by the specified or indicated by the offerorofferor

The “yes” which ends The “yes” which ends negotiationsnegotiations

AcceptanceAcceptance

Must respond to the offerMust respond to the offer Must be communicatedMust be communicated

Subject to exceptions - Postal Subject to exceptions - Postal Acceptance RuleAcceptance Rule

Must not be conditionalMust not be conditional

Acceptance must Acceptance must respondrespond to the to the offeroffer

So, only those persons:So, only those persons: to whom the offer was made; to whom the offer was made; andand who have the offer in mind at the who have the offer in mind at the

point of “acceptance” may point of “acceptance” may acceptaccept

RR v v ClarkeClarke (1927) 40 CLR 227(1927) 40 CLR 227

RR v v ClarkeClarke

““it is not an absolute proposition it is not an absolute proposition of law that one who, having the of law that one who, having the offer before him, acts as one offer before him, acts as one would naturally be induced to would naturally be induced to act, is deemed to have acted on act, is deemed to have acted on the faith of or in reliance upon the faith of or in reliance upon that offer. It is an inference of that offer. It is an inference of fact and may be excluded by fact and may be excluded by contrarycontrary evidence.”evidence.”

Starke J at 244Starke J at 244

What Can Be Accepted?What Can Be Accepted?

Only what was offered Only what was offered (without (without any additions, any additions, deletions or deletions or conditions)conditions)

Must Must endend negotiations negotiations Must be unqualified Must be unqualified Battle of the forms Battle of the forms (cf (cf

counter counter offer)offer) Butler Machine Tool Co LtdButler Machine Tool Co Ltd v v Ex-Ex-

cell-O Corp (England) Ltdcell-O Corp (England) Ltd [1979] 1 All ER 965[1979] 1 All ER 965

Acceptance must be communicatedAcceptance must be communicated

Silence is not sufficientSilence is not sufficient FelthouseFelthouse v v BindleyBindley (1862) 11 CB(NS) 869(1862) 11 CB(NS) 869

Conduct may communicate Conduct may communicate acceptanceacceptance BrogdenBrogden v v Metropolitan Railways Metropolitan Railways (1877) 2 App (1877) 2 App

Cas 666 Cas 666

Empirnall HoldingsEmpirnall Holdings v v Machon Paul Machon Paul (1988) 14 (1988) 14 NSWLR 523 NSWLR 523

Communication by conductCommunication by conduct

““where an offeree with a where an offeree with a reasonable opportunity to reject reasonable opportunity to reject the offer of goods or services takes the offer of goods or services takes the benefit of them under the benefit of them under circumstances which indicate that circumstances which indicate that they were to be paid for in they were to be paid for in accordance with the offer, it is accordance with the offer, it is open to the tribunal of fact to hold open to the tribunal of fact to hold that the offer was accepted that the offer was accepted according to its terms.”according to its terms.”

McHugh JA at 535 in McHugh JA at 535 in Empirnall HoldingsEmpirnall Holdings v v Machon PaullMachon Paull

Exceptions to communicationExceptions to communication

Postal Acceptance RulePostal Acceptance Rule Lord Herschell said in Lord Herschell said in Henthorn Henthorn v v FraserFraser [1892] [1892]

2 Ch 27 at 33:2 Ch 27 at 33:““Where the circumstances are such that it Where the circumstances are such that it must have been within the contemplation must have been within the contemplation of the parties that, according to the of the parties that, according to the ordinary usages of mankind, the post ordinary usages of mankind, the post might be used as a means of might be used as a means of communicating the acceptance of an offer, communicating the acceptance of an offer, the acceptance is complete as soon as it is the acceptance is complete as soon as it is posted.”posted.”

So:So: Acceptance complete on posting Acceptance complete on posting

(constructive vs actual communication)(constructive vs actual communication) Within the reasonable contemplation of the Within the reasonable contemplation of the

partiesparties AdamsAdams v v LindsellLindsell (1818) 1 B & Ald 681(1818) 1 B & Ald 681

Postal acceptance rule will not Postal acceptance rule will not apply:apply:

Contentious matters - Contentious matters - Tallerman & Tallerman & Co Pty LtdCo Pty Ltd v v Nathan’s Merchandise Nathan’s Merchandise (Vic) Pty Ltd(Vic) Pty Ltd (1957) 98 CLR 93 (1957) 98 CLR 93

If actual notice requested - If actual notice requested - BressanBressan v v SquiresSquires [1974] 2 NSWLR 460[1974] 2 NSWLR 460

Wedding cakeWedding cakeAs well, Mavis is being threatened with As well, Mavis is being threatened with legal action by Chrissie Saranrap. Chrissie legal action by Chrissie Saranrap. Chrissie was married a month ago and was was married a month ago and was expecting Mavis to provide her specialty – expecting Mavis to provide her specialty – the “nouveau doveau” - a tiered tower of the “nouveau doveau” - a tiered tower of cupcakes, iced in white and arranged to cupcakes, iced in white and arranged to resemble the wings of doves – as the resemble the wings of doves – as the centrepiece cake for her wedding centrepiece cake for her wedding reception. Mavis loves doing cakes for reception. Mavis loves doing cakes for weddings – in fact she now makes more weddings – in fact she now makes more money from doing wedding cakes than she money from doing wedding cakes than she does from her regular cooking classes. does from her regular cooking classes.

Chrissie saw information about Mavis’ cake Chrissie saw information about Mavis’ cake services after an article in the local paper, and services after an article in the local paper, and called round to see Mavis, and look at the called round to see Mavis, and look at the different cakes she could make. They different cakes she could make. They discussed possibilities and pricing and discussed possibilities and pricing and Chrissie left with a price list. Apparently, Chrissie left with a price list. Apparently, Chrissie called and left Mavis a message on Chrissie called and left Mavis a message on the answering machine ordering the “nouveau the answering machine ordering the “nouveau doveau” for her wedding, to be delivered on doveau” for her wedding, to be delivered on 2nd May at the wedding reception, for $2,000 2nd May at the wedding reception, for $2,000 COD. In her message, Chrissie had said: “If I COD. In her message, Chrissie had said: “If I don’t hear to the contrary, I’ll assume don’t hear to the contrary, I’ll assume everything is OK. Call me if there is a problem everything is OK. Call me if there is a problem – otherwise I will see you on the 2nd. Looking – otherwise I will see you on the 2nd. Looking forward to your lovely creation.”forward to your lovely creation.”

Unfortunately, because of all the work Unfortunately, because of all the work being done to the kitchen and being done to the kitchen and problems with electrical work and problems with electrical work and electrical supply, Mavis had electrical supply, Mavis had experienced a number of black outs experienced a number of black outs which had interrupted her answering which had interrupted her answering machine. Mavis – never received the machine. Mavis – never received the message from Chrissie, and so of message from Chrissie, and so of course, had not provided the cake. course, had not provided the cake. Chrissie is very angry and claims her Chrissie is very angry and claims her wedding was ruined without the cake. wedding was ruined without the cake. She has threatened to sue Mavis. She has threatened to sue Mavis.