Contracts
Contracts LAW204
M A C Q U A R I E U N I V E R S I T Y , S Y D N E Y
Contracts
Contracts
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Introduction to Contracts Definition of Contract A contract is a binding promise between two or more parties based on an obligatory agreement that is enforced or recognised by law.
Classification of Contracts Promissory Intent 1. Bilateral contracts: One in which both parties have obligation to perform at the time the contract comes into existence. An exchange of promises. 2. Unilateral Contracts: Whereby an offer can only be accepted by performance. E.g. $100 reward for finding a missing dog. Exchange of a promise for an act. (Carlill v Carbolic) Formation 1. Express contracts: Created by the express words/ actions of parties. 2. Implied contracts: A contract that arises by non-‐verbal conduct or assumed intentions. (Clarke v Dunraven 1897) 3. Simple contracts: Can be entered into orally and/or in writing. No particular form is necessary. 4. Formal contracts: Parties must sign a particular form of writing know as a deed. Enforceability 1. Valid contracts: All elements of a contract are satisfied 2. Void contracts: There was no contract from the beginning. Could have been a mistake, or due to illegality. 3. Voidable contracts: Contract has been validly formed-‐ but it can be rescinded due to some vitiating factors. E.g. quality of the consent given by one or more parties. 4. Unenforceable contracts: Lacks formal paperwork/ procedure. 5. Illegal contracts: Against public policy. Generally void contract. E.g. contract to murder someone is illegal. Performance Executed contracts: Contract has already been performed. Executory contracts: Contract yet to be performed. Remedies Common law 1) Damages: Payment of money to compensate for loss arising from breach of contract. Only actual loss can be compensated i.e. loss calculated if the contract had been performed. Equitable remedies 1) Specific performance: Positive act required enforcing one of the parties to fulfil their obligations
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(Beswick v Beswick) 2) Injunction: Stopping a party from exercising their rights. Stopping the party from performing the contract or an element of it. Kind of restraining order (Curro v Beyond Productions P/L) 3) Rescission: Revoking the contract. Returning the parties to the position they were in before the contract. 4) Rectification-‐ Written contract may need to be rectified due to mistake. Equitable remedies are NOT awarded as of right. They are discretional remedies in the hands of courts.
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Agreement-‐ Offer and Acceptance Offer A clear statement of the terms upon which its maker is prepared to be contractually bound (Crest Nicholson Ltd v Akaria Investments Ltd) •
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The offer must be definite the test is objective – i.e. would a reasonable person in the position of the offeree believe than an offer was intended and that a binding agreement would be made upon acceptance? (John Howard v J P Knight) An offer is only valid if it identifies a valid consideration and manifests an intention to create a legal obligation. It must also have an element of certainty. (Gibson v Manchester City Council). Merely calling something an offer doesn’t make it an offer.
Should be distinguished from: 1) Invitations to treat i.e. invitations to make an offer/ bargain. This includes advertisements and goods on display. (Pharmaceutical Society v Boots Cash Chemist), (Lefkowitz v Great Minneapolis Surplus Store). •
(Carlill v Carbolic) established that an advertisement can sometimes be an offer if there is intention to be legally bound.
2) Request for Info: (Stevenson Jacques and Co v Mclean)-‐ Court said not a counter offer or rejection, but rather a request for information. 3) Tenders: -‐ Tenders are offers to carry out work -‐ Tenderers make the offer, as opposed to the person calling for the tender. (Blackpool & Fylde Aero Club v Blackpool Borough Council)-‐ This case established that all tenders submitted on time must be considered, however there’s no obligation to accept and form a contract. -‐ Tender may constitute an offer given circumstances. Termination of Offers Revocation: • •
An offer may be revoked by the offeror any time before it has been accepted. A revocation of an offer is ineffective until it is communicated to the offeree.
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Revocation of an offer takes place when communication is received or when it is reasonably expected to be received. No postal acceptable rule here! (Byrne and Co v Leon Van Tienhoven and Co) There does not need to be an express or actual withdrawal of the offer – communication through a third party will suffice. (Dickinson v Dodds) Revocation of unilateral contracts: Must be revoked with the same broadness, attention, and the same method that it was first communicated. (Shuey v United States)-‐ This is the case-‐ there is no decided authority in Australia. It has been held that a unilateral offer cannot be withdrawn once the offeree has partly performed the requested act. (Errington v Errington). However, If offeree has started the process of acceptance and it has benefited them in some way, then it is ok for the other party to revoke its offer. (Mobile Oil Aust v Lyndel Nominees) 1998
An offer can also be terminated after a specific lapse of time, as mentioned in the contract. If no time is mentioned, the contract can also be terminated after a ‘reasonable amount of time’ has passed. (Ramsgate Victoria Hotel Co Ltd v Montefiore) Offer is terminated by rejection. -‐ Counter offer terminates the original offer. (Hyde v Wrench) BUT, the current Australian position is that even if there is agreement on the fundamental terms of the transaction, if the offeree adds an additional term, a counter-‐offer is made. A contract will not be formed until the counter-‐offer is accepted. Option contracts-‐ Contract to keep an offer open for a period of time. E.g. sale of land. Buyer pays an option fee and other party agrees to wait for buyer to make a decision.
Acceptance Acceptance is a final and unqualified assent to the terms of the offer, made in the manner specified or indicated by the offeror. • Acceptance has to be a mirror image of the offer. Cannot be conditional (this makes it a counter-‐offer). (Hyde v Wrench) • There has to be ‘consensus ad idem’ i.e. meeting of the minds. • Has to be in response to an offer (R v Clarke)-‐ The court held that Clarke could not claim a reward for information he had given because he had given the information to convince the police
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of his innocence and not in response to the offer of the reward he did not have the reward offer in his mind at the time. • Acceptance must be express or implied. Silence cannot constitute acceptance. (Felthouse v Bindley)-‐ Mere “mental acceptance” is not enough. An offeror cannot compel to take positive steps to reject an offer by stating that silence will amount to acceptance. • The court, after restating the general rule that silence is not acceptance, held that in some situations there may be a duty on the offeree to communicate a rejection of the offer. This was held in (Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Ltd). In this case, the party subsequently acknowledged that the proposed contract was “fine”, paid the claim but never signed the contract. • Acceptance must be communicated. General rule: acceptance must be communicated to be effective. The manner of that communication is up to the parties and more particularly up to the offeror if s/he wishes to prescribe method of acceptance. o Exceptions: 1) Unilateral offers. In unilateral contracts acceptance can be communicated through performance (Carlill). 2) Postal acceptance rule
Postal acceptance rule • •
Where the parties contemplate acceptance by mail, acceptance will be complete as soon as the letter is properly posted (Henthorn v Fraser [1892]. Acceptance takes place when the letter is posted, not when it is received, even if the acceptance is lost in the post. o Intention: For the rule to apply, acceptance by post MUST have been contemplated by the parties (Henthorn v Fraser [1892]). It may be excluded by the offeror either expressly or impliedly.
Revocation of postal acceptance rule -‐
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Revocation of acceptance by post would be innefective, since acceptance takes places when the letter is sent, and therefore both parties would already be bound by the contract. (Perry v Suffields Ltd). Courts may be lenient to revoke postal acceptance if communication of change of mind, after sending a letter of acceptance is by some speedier means of communication. (Dunmore v Alexander) Courts may also be lenient if no prejudice or harm is done to the other party. (Dunmore v Alexander) However, since there is no binding authority in Australia in regard to this issue, courts can use past judgements from different jurisdictions to make a decision based on their own discretion.
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Nevertheless, given the rules of offer and acceptance, and the guidelines of the postal acceptance rule, the party revoking will most likely be bound by his acceptance, since a binding agreement had already been formed.
Battle of the Forms Often when two companies deal with each other in the course of business, they will use standard form contracts. Often these standard terms conflict (e.g. both parties include a liability waiver in their form). The 'battle of the forms' refers to the resulting legal dispute arising where both parties accept that a legally binding contract exists, but disagree about whose standard terms apply.
In Tekdata Interconnections case COA applied the traditional offer and acceptance rule- "It is not possible to lay down a general rule that will apply in all cases where there is a battle of the forms. It always depends on an assessment of what the parties must objectively be taken to have intended. But where the facts are no more complicated than that A makes an offer on its conditions and B accepts that offer on its conditions and, without more, performance follows, it seems to me that the correct analysis is… that there is a contract on B's conditions." Butler Machine Tool Co Ltd v Ex-‐cell-‐o Corporation (England) Ltd Facts: • • •
The seller of machinery quoted a price on a standard form. The form contained a clause entitling the seller to vary that price. The buyer placed an order for the same machinery on its own order form. The order form contained different standard conditions. The seller acknowledged the order by returning the acknowledgment form to the buyer.
Held: • •
The English Court of Appeal held that the seller was not entitled to rely on the price variation clause as it did not form part of the contract. The buyer’s order constituted a counter-‐offer because it contained terms different from the seller’s original offer. That counter-‐offer was accepted when the seller returned the acknowledgment.
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