MLL 111 Contract Law Notes
MLL 111 Contract Law Notes CHAPTER 2 AGREEMENT OVERVIEW: Agreement• Meeting of minds/consensus reached b/w 2 or more parties on a subject. • Determined objectively (reasonable person) • Need a valid offer and acceptance. Offer: • What is it: It’s a communication amounting to a promise to do (or not to do) something if the person to whom it is addressed responds in a certain way; e.g. by making a promise in return, or performing a specified task. • To Whom can it be made? Can be made to the world and can become a CT with anyone performing conditions stipulated: Carlill v Carbolic Smoke Ball Co (Facts: CSB offered $1000 to person who caught flu if it used one of their smoke balls. Mrs C bought and used a smoke ball and caught flu and claimed reward. Held: Offer to world made here that could become a contract with anyone performing conditions stipulated) • Offer vs Intention to Deal/Treat- For offer: Must intend that an affirmative response will give rise to a final agreement. Invitation to Deal- Where response gives rise to a further negotiation (and affirmative response will amount to offer which can be accepted or rejected). Eg Items on shop shelf, advertisements. Test in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (Pharmaceutical goods on shelf of self-service store. Held: In shop, CT not completed til shopkeeper accepts customer’s offer)): Lefkowitz v Great Minneapolis Surplus Store (Facts: 3 coats advertised to be sold for $1 each to first served. Held: court said where ‘the offer is clear, definite and explicit, and leaves nothing open to negotiation, it constitutes an offer, acceptance of which will complete the contract.’ Each case will depend on the ‘legal intention of the parties and the surrounding circumstance’). • Auctions: Auctioneer makes invitation to deal/treat (invites offers). May be issue if auction is ‘without reserve’ AGC (Advances) Ltd v McWhirter • Tenders- Standing Offer-Tender invited for goods and services- CT formed only when order made. Fixed Tender: amounts to an offer. • Requests for Information: eg: lowest price you will sell house is not an offer but request for information (Harvey v Facey). To classify a communication, look at: The likelihood of the communication being an offer; The terms of the communication involved; Whether parties contemplated involvement of lawyers; Subsequent event
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Termination of Offer: Once terminated, offer can’t be accepted. Termination occurs via: revocation; rejection; failure to accept on time; death of offeror/ offeree; failure of a condition. Revocation: Withdrawal of Offer by offeror- can occur any time before acceptance, can use words/conduct and must be communicated. Can have revocation via 3rd party (if it is authorised or results from offeror). Promise not to revoke must be supported by consideration: Dickinson v Dodds (Facts: D (Dodds) offered to sell P (Dickinson) house, offer open til 12 June. P decided to accept offer on 11 June but did not tell D and 3rd party told P on 11th house sold to another. P tried to accept but D said too late. Held: Revocation of offer need not be express- can be effective if offeror lets offeree know he has changed his mind (via 3rd party); Byrne v Van Tienhoven. No revocation til communicated and Postal Rule does not apply to revocation: Byrne v Van Tienhoven (Facts: Letter used to revoke offer of goods) Rejection- Counter Offer- Amounts to rejection: terminates offer. Must be communicated and postal rule does not apply. Counter Offer- new offer made in response to offer (ie accepting on different terms). Rejects original offer so can’t be subsequently agreed to by offeree: Hyde v Wrench (D offers to sell land to P for $1200. D rejects. P offers at $1000 and P offers to buy $950. D refuses to sell and P says will buy for $1000. D refuses to sell. Contract? Held: No CT as P’s offer for $950 was a rejection of D’s offer to sell at $1,000). Note difference b/w counter offer and request for further information (latter does not reject original offer: Stevenson, Jaques and Co v McLean (Facts: S asked if time of delivery was negotiable and M treated communication as rejection and sold items to 3rd party. Held: Merely request for further info so S’s subsequent acceptance of M’s offer created a CT) Lapse of Time: If duration of time not stipulated, offer comes to an end after a reasonable time (this depends on circumstances). International Perspective: UN Convention on CTs for Sale of Goods (Art 20/21); period for acceptance fixed by offeror in telegram/letter runs from time telegram handed in to be sent or from date on letter. Time for acceptance runs from moment offer reaches offeree. India: Indian CT Act 1872 (ss3-5); China: CT Law of People’s Republic of China 1999 Arts1520)
Acceptance: • Is an unequivocal statement (oral, written or by conduct) by the offeree agreeing to the offer? • Must occur in response to offer (can’t occur in ignorance of offer) Crown v Clarke. • Can be accepted by person to whom it is directed or if it’s made to world at large, by anyone in the world. • May accept by words or conduct -Test is ‘whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.’ Empirinall Holdings • Words or conduct must be consistent with offer: Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd • MUST BE COMMUNICATED • When? Agreement concluded at time acceptance is received by offeror- not when sent ( if instantaneous- when message is given to offeror).
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Where? Deemed to occur where it is received rather than where it is sent. Imposing silence: will not constitute consent. Eg if I don’t hear from you, you are deemed to accept: Felthouse V Bindley Exceptions: Waiver (Carlill); Silence- if combined with other circumstances (other conduct) , may be a valid acceptance: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd: Estoppel; Postal Rule Postal Rule: exception to the general rule that acceptance occurs when and where it REACHES the offeror. When the postal rule applies, acceptance occurs when and where letter was sent.
POSTAL RULE When the rule applies: • applies to letters/telegrams and the like • the offeror must have contemplated acceptance could be communicated in this way • (whether expressly or by implication from conduct or circumstances). When the rule does not apply • To instantaneous forms of communication such as fax or phone or email. See Brinkibon Ltd v Stahag Stahl und Stahl‐Warendhandelsgesellschaft mbH (telex); Schib Packaging Srl v Emrich Industries P/L • If post is not contemplated- see wording of communications: Bressan V Squires (Words used were ‘by notice in writing’=court said this means when communicated to offeror). Also, Nunin Holdings Pty Ltd Vv Tullamarine Estates Pty Ltd- postal rule will not apply if a contrary stipulation appears in offer. • If post is contemplated by the offeror makes clear that acceptance will not be effective until a letter is received (see Nunin Holdings Pty Ltd Vv Tullamarine Estates Pty Ltd) • If a letter is lost or delayed because it was wrongly addressed or stamped • If it is unreasonable to use post in the circumstances (eg, during a postal strike) •
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Form of acceptance- if stipulated and is obligatory, method must be adopted for valid acceptance: Manchester Diocesan Council for Education v Commercial & General Investments Ltd Electronic Transactions (Victoria) Act 2000- eg emails- dispatch of an electronic communication occurs when you hit send on your email and it disappears into the void. The result of this legislation is that where email is contemplated as a means of acceptance that acceptance occurs when the email is sent (if email not contemplated, then when it comes to the recipient’s attention). It will be deemed to have been received at the addressee’s place of business. Thus, if the addressee’s place of business is Melbourne, but she happens to check her email while on a business trip to Hong Kong, the email will be taken to have been received in Melbourne.
Unilateral Agreement: only one party makes a promise (cf bilateral agreement where both parties make a promise). Test for deciding if a contract is bilateral or unilateral:Look to intention of the parties – rather than the words or the form used. Ask: did the terms of the offer seek a promise from the offeree ‐ what was the offeror asking for? Example: I will pay you $1000 if you paint my house. Unilateral (no reciprocal promise sought).
These types of contracts are most likely to be used in cases where the offeror wants the offeree(s) to do something, but knows that they are unlikely to promise to do it. For example, people are not likely to promise to find your lost dog, but you would like them to try to, so you might offer a reward. •
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Revocation of Unilateral Contract- In Daulia v Four Millbank it was suggested that in the case of offers of unilateral contracts, the offer is accepted and a contract is made when an unequivocal commencement of the act has occurred. BUT in Mobil Oil v Wellcome- there is no general proposition that offers for unilateral contracts could not be revoked after offeree commenced performance. International Perspective: India: S4 Indian CT Act 1872Postal rule is entrenched as norm for communications using post or similar services. Revocation. Offeree can revoke posted acceptance so long as revocation arrives before acceptance does. China CT Law of People’s Republic of China 1999: Acceptance requires communication and can be withdrawn prior to communication. No equivalent to postal rule.
Certainty and Conditional Contracts: Certainty• Agreement must be certain in all material respects before it is binding- Agreement that is uncertain in material respect can’t constitute a binding CT. • 3 ways agreement may be considered uncertain: 1. Vagueness or ambiguity 2. Incompleteness 3. Agreements to agree Vagueness/ambiguity: • If agreement so vague/uncertain that court can’t work out what is intended- too uncertain to be enforceable: Scammell v Ousten (hire purchase terms- obscure); Raffles v Wichelhaus (mix up re 2 ships named Peerless); Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd (‘supplier’s cost’s for electricity- term not uncertain) •
Courts will try to resolve uncertainty/ambiguity by looking at: 1. Extrinsic evidence explaining words/phrases 2. Custom or trade usage 3. Determining what is a ‘reasonable’ construction
Illusory Agreements: • Making performance of a contractual promise a matter for party’s discretion: eg ‘I promise to supply you with apples if you promise to pay me at a price to be determined by you’. Promise is Illusory as no promise to pay anything as offeree can pay $0 so not promising to do anything. • Note Kirby P in Biotechnology Australia Pty Ltd v Pace (P entered CT of employment with B which said he’s have option to participate in co’s staff equity sharing scheme- no such scheme existed at time of CT or when P resigned. P sued for breach of CT, succeeded and B appealed. Held: Vague term of CT and uncertain so not enforceable. Was just a provision for future arrangements): The court will not create an agreement where parties have failed to articulate their agreement. ‘Nor will the court clarify that which is irremediably obscure’ or ‘accept for itself a discretion which the parties have … reserved to one or other of them’. Doing so would change the contract. Relevant matters incl: a. A term will be enforceable where it clearly identifies a third person who is given power (by the parties) to (and does) ‘settle ambiguities and uncertainties’. b. But, ‘if the term is so vital that leaving it to one only of the parties unacceptably removes certainty in the arrangement, the court may or may not refuse to enforce it as illusory or unacceptably uncertain’. c. ‘Where there is a readily ascertainable external standard’ the court will consider it when determining whether they can give effect to a provision which otherwise appears vague and uncertain or illusory. d. Where a term contains a ‘range of possibilities’ the Court will hold the party to providing at least the minimum provision within the range rather than avoiding the contract entirely (eg, providing for payment between $100 ‐ $500, the Court would require payment of at least the minimum, $100,rather than holding it to be uncertain)
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Termination of Offer: Once terminated, offer can’t be accepted. Termination occurs via: revocation; rejection; failure to accept on time; death of offeror/ offeree; failure of a condition. Revocation: Withdrawal of Offer by offeror- can occur any time before acceptance, can use words/conduct and must be communicated. Can have revocation via 3rd party (if it is authorised or results from offeror). Promise not to revoke must be supported by consideration: Dickinson v Dodds (Facts: D (Dodds) offered to sell P (Dickinson) house, offer open til 12 June. P decided to accept offer on 11 June but did not tell D and 3rd party told P on 11th house sold to another. P tried to accept but D said too late. Held: Revocation of offer need not be express- can be effective if offeror lets offeree know he has changed his mind (via 3rd party); Byrne v Van Tienhoven. No revocation til communicated and Postal Rule does not apply to revocation: Byrne v Van Tienhoven (Facts: Letter used to revoke offer of goods) Rejection- Counter Offer- Amounts to rejection: terminates offer. Must be communicated and postal rule does not apply. Counter Offer- new offer made in response to offer (ie accepting on different terms). Rejects original offer so can’t be subsequently agreed to by offeree: Hyde v Wrench (D offers to sell land to P for $1200. D rejects. P offers at $1000 and P offers to buy $950. D refuses to sell and P says will buy for $1000. D refuses to sell. Contract? Held: No CT as P’s offer for $950 was a rejection of D’s offer to sell at $1,000). Note difference b/w counter offer and request for further information (latter does not reject original offer: Stevenson, Jaques and Co v McLean (Facts: S asked if time of delivery was negotiable and M treated communication as rejection and sold items to 3rd party. Held: Merely request for further info so S’s subsequent acceptance of M’s offer created a CT) Lapse of Time: If duration of time not stipulated, offer comes to an end after a reasonable time (this depends on circumstances). International Perspective: UN Convention on CTs for Sale of Goods (Art 20/21); period for acceptance fixed by offeror in telegram/letter runs from time telegram handed in to be sent or from date on letter. Time for acceptance runs from moment offer reaches offeree. India: Indian CT Act 1872 (ss3-5); China: CT Law of People’s Republic of China 1999 Arts1520)
Acceptance: • Is an unequivocal statement (oral, written or by conduct) by the offeree agreeing to the offer? • Must occur in response to offer (can’t occur in ignorance of offer) Crown v Clarke. • Can be accepted by person to whom it is directed or if it’s made to world at large, by anyone in the world. • May accept by words or conduct -Test is ‘whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.’ Empirinall Holdings • Words or conduct must be consistent with offer: Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd • MUST BE COMMUNICATED • When? Agreement concluded at time acceptance is received by offeror- not when sent ( if instantaneous- when message is given to offeror).
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Where? Deemed to occur where it is received rather than where it is sent. Imposing silence: will not constitute consent. Eg if I don’t hear from you, you are deemed to accept: Felthouse V Bindley Exceptions: Waiver (Carlill); Silence- if combined with other circumstances (other conduct) , may be a valid acceptance: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd: Estoppel; Postal Rule Postal Rule: exception to the general rule that acceptance occurs when and where it REACHES the offeror. When the postal rule applies, acceptance occurs when and where letter was sent.
POSTAL RULE When the rule applies: • applies to letters/telegrams and the like • the offeror must have contemplated acceptance could be communicated in this way • (whether expressly or by implication from conduct or circumstances). When the rule does not apply • To instantaneous forms of communication such as fax or phone or email. See Brinkibon Ltd v Stahag Stahl und Stahl‐Warendhandelsgesellschaft mbH (telex); Schib Packaging Srl v Emrich Industries P/L • If post is not contemplated- see wording of communications: Bressan V Squires (Words used were ‘by notice in writing’=court said this means when communicated to offeror). Also, Nunin Holdings Pty Ltd Vv Tullamarine Estates Pty Ltd- postal rule will not apply if a contrary stipulation appears in offer. • If post is contemplated by the offeror makes clear that acceptance will not be effective until a letter is received (see Nunin Holdings Pty Ltd Vv Tullamarine Estates Pty Ltd) • If a letter is lost or delayed because it was wrongly addressed or stamped • If it is unreasonable to use post in the circumstances (eg, during a postal strike) •
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Form of acceptance- if stipulated and is obligatory, method must be adopted for valid acceptance: Manchester Diocesan Council for Education v Commercial & General Investments Ltd Electronic Transactions (Victoria) Act 2000- eg emails- dispatch of an electronic communication occurs when you hit send on your email and it disappears into the void. The result of this legislation is that where email is contemplated as a means of acceptance that acceptance occurs when the email is sent (if email not contemplated, then when it comes to the recipient’s attention). It will be deemed to have been received at the addressee’s place of business. Thus, if the addressee’s place of business is Melbourne, but she happens to check her email while on a business trip to Hong Kong, the email will be taken to have been received in Melbourne.
Unilateral Agreement: only one party makes a promise (cf bilateral agreement where both parties make a promise). Test for deciding if a contract is bilateral or unilateral:Look to intention of the parties – rather than the words or the form used. Ask: did the terms of the offer seek a promise from the offeree ‐ what was the offeror asking for? Example: I will pay you $1000 if you paint my house. Unilateral (no reciprocal promise sought).
These types of contracts are most likely to be used in cases where the offeror wants the offeree(s) to do something, but knows that they are unlikely to promise to do it. For example, people are not likely to promise to find your lost dog, but you would like them to try to, so you might offer a reward. •
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Revocation of Unilateral Contract- In Daulia v Four Millbank it was suggested that in the case of offers of unilateral contracts, the offer is accepted and a contract is made when an unequivocal commencement of the act has occurred. BUT in Mobil Oil v Wellcome- there is no general proposition that offers for unilateral contracts could not be revoked after offeree commenced performance. International Perspective: India: S4 Indian CT Act 1872Postal rule is entrenched as norm for communications using post or similar services. Revocation. Offeree can revoke posted acceptance so long as revocation arrives before acceptance does. China CT Law of People’s Republic of China 1999: Acceptance requires communication and can be withdrawn prior to communication. No equivalent to postal rule.
Certainty and Conditional Contracts: Certainty• Agreement must be certain in all material respects before it is binding- Agreement that is uncertain in material respect can’t constitute a binding CT. • 3 ways agreement may be considered uncertain: 1. Vagueness or ambiguity 2. Incompleteness 3. Agreements to agree Vagueness/ambiguity: • If agreement so vague/uncertain that court can’t work out what is intended- too uncertain to be enforceable: Scammell v Ousten (hire purchase terms- obscure); Raffles v Wichelhaus (mix up re 2 ships named Peerless); Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd (‘supplier’s cost’s for electricity- term not uncertain) •
Courts will try to resolve uncertainty/ambiguity by looking at: 1. Extrinsic evidence explaining words/phrases 2. Custom or trade usage 3. Determining what is a ‘reasonable’ construction
Illusory Agreements: • Making performance of a contractual promise a matter for party’s discretion: eg ‘I promise to supply you with apples if you promise to pay me at a price to be determined by you’. Promise is Illusory as no promise to pay anything as offeree can pay $0 so not promising to do anything. • Note Kirby P in Biotechnology Australia Pty Ltd v Pace (P entered CT of employment with B which said he’s have option to participate in co’s staff equity sharing scheme- no such scheme existed at time of CT or when P resigned. P sued for breach of CT, succeeded and B appealed. Held: Vague term of CT and uncertain so not enforceable. Was just a provision for future arrangements): The court will not create an agreement where parties have failed to articulate their agreement. ‘Nor will the court clarify that which is irremediably obscure’ or ‘accept for itself a discretion which the parties have … reserved to one or other of them’. Doing so would change the contract. Relevant matters incl: a. A term will be enforceable where it clearly identifies a third person who is given power (by the parties) to (and does) ‘settle ambiguities and uncertainties’. b. But, ‘if the term is so vital that leaving it to one only of the parties unacceptably removes certainty in the arrangement, the court may or may not refuse to enforce it as illusory or unacceptably uncertain’. c. ‘Where there is a readily ascertainable external standard’ the court will consider it when determining whether they can give effect to a provision which otherwise appears vague and uncertain or illusory. d. Where a term contains a ‘range of possibilities’ the Court will hold the party to providing at least the minimum provision within the range rather than avoiding the contract entirely (eg, providing for payment between $100 ‐ $500, the Court would require payment of at least the minimum, $100,rather than holding it to be uncertain)
