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Copyright Guy Harley 2004
Contract An agreement between two or more persons that will be
enforced by law May be
In writing Oral Partly in writing and partly oral
Contracts need not be in writing (some exceptions)
Copyright Guy Harley 2004
Analysing a Contract
Is there a contract?
What are the terms?
Is it valid & enforceable?
Has it been discharged?
Has there been a breach?
Copyright Guy Harley 2004
Six Elements1. Offer
2. Acceptance
3. Intention to create a contract
4. Consideration
5. Contractual Capacity
6. Certainty
The elements are not always clear
Copyright Guy Harley 2004
Offer Specific legal meaning An offer exists only where a reasonable person would
conclude on the facts that the person was willing to be bound in a court of law
Distinguish Indication of future conduct Invitation to treat Negotiations
Copyright Guy Harley 2004
Indication of Future Conduct A mere statement of a present intention to do something
in the future is not an offer Harvey v Facey (S&O p 70) Australian Woollen Mills v Commonwealth (S&O p70) Harris v Nickerson (S&O p71) Kelly v Caledonian Coal Co (S&O p71)
Copyright Guy Harley 2004
Invitation to Treat An invitation to
Negotiate Make an offer
is not an offer but an “Invitation to Treat” The distinction lies in the objective intention of the
person making the offer or invitation to treat.
Copyright Guy Harley 2004
Invitation to Treat Retail Displays Catalogues Advertisements Auctions Tenders
Copyright Guy Harley 2004
Retail Displays Fisher v Bell (S&O p72) Pharmaceutical Society v Boots (S&O p73) In most circumstances the retailer does not make an
offer by displaying goods for sale, even where the goods are marked with a price
Copyright Guy Harley 2004
Catalogues Grainger v Gough (S&O p73) If the catalogue publisher was making an offer then it
would be bound by every acceptance even if their stock was exhausted.
Copyright Guy Harley 2004
Advertisements Depends on circumstances Carlill v Carbolic Smoke Ball Co (S&O p74) But note legislative restrictions e.g. Trade Practices Act
Copyright Guy Harley 2004
Negotiations An offer will not arise merely because parties have
reached agreement on one aspect of the deal Implied (or express) understanding that parties not
bound until formal contract executed Heads of Agreement
Copyright Guy Harley 2004
Fate of An Offer Withdrawn by offeror Accepted by offeree Rejected by offeree Lapse due to passing of time Lapse due to death of offeror or offeree Lapse due to failure of condition precedent
Copyright Guy Harley 2004
Withdrawing an Offer Cannot be withdrawn after accepted A contract is made when the offer is accepted The withdrawal of the offer must be communicated to the
offeree Special cases:
Unilateral offers Options cannot be withdrawn
Copyright Guy Harley 2004
Withdrawing an Offer Before Acceptance Generally, an offeror may withdraw an offer at any time
before acceptance Routledge v Grant (S&OR p78) But, options cannot be withdrawn
an option is a separate enforcable obligation and cannot be withdrawn
Exists where the offeree has given consideration to keep an offer open
Goldborough Mort v Quinn (S&OR p 80)
Copyright Guy Harley 2004
Withdrawal Must be Communicated Offeror must let the offeree know that the offer is
withdrawn Byrne & Co v Tienhoven & Co S&OR p79) Offeror does not have to communicate withdrawal
personally Would a reasonable person in the position of the offeree
conclude that the offer had been withdrawn?
Copyright Guy Harley 2004
Withdrawing a Unilateral Offer Involves a unilateral promise e.g. Carllil v Carbolic
Smoke Ball Co (S&O p74) If offeree has acted on the promise then offeror cannot
withdraw until offeree has had a reasonable opportunity to complete
Copyright Guy Harley 2004
Rejecting an Offer Once rejected, an offer cannot be accepted May be rejected expressly or by implication Implied
Offeree’s actions are inconsistent with an intention to accept
Copyright Guy Harley 2004
Rejecting An Offer (Cont.) A counter offer is a rejection
Hyde v Wrench (S&O p81) Any material alteration is a counter offer
Restating the offer when accepting is not a counter offer
Turner Kempson v Camm (S&O p81)
Copyright Guy Harley 2004
Rejecting An Offer (Cont.) A counter offer is a rejection (cont.)
Asking for clarification is not a counter offer
Reasonable person test examine all circumstances
Copyright Guy Harley 2004
Lapse of Offer Due to death of either party unless
An option; and Does not involve personal skill or service by the
deceased Due to failure of condition precedent Due to time
Express time limit Otherwise, offer remains open for a reasonable time
Copyright Guy Harley 2004
Lapse of Offer (Cont.) Due to time (Cont.)
What is reasonable time depends on: Method by which offer made Nature of the transaction Terms of Proposed Contract Actions of parties between offer &
purported acceptance Intimations as to time by offeror
Copyright Guy Harley 2004
Accepting the Offer Only person to whom the offer was made may accept Acceptance must be final & unqualified Must be communicated to the person who made the
offer (some exceptions)
Copyright Guy Harley 2004
Accepting the Offer (Cont.) Acceptance must be final & unqualified
“Subject to Formal Contract” – 3 possibilities
1. There is a contract & one of terms is that documentation be prepared
2. There is a contract but nothing can happen until contract prepared
Copyright Guy Harley 2004
Accepting the Offer (Cont.) Acceptance must be final & unqualified (cont.)
“Subject to Formal Contract” (cont.)
3. There is no contract
Masters v Cameron (S&OR p82) Plastyne Products v Gall
Engineering (S&OR p83) Communications after acceptance are irrelevant
Copyright Guy Harley 2004
Acceptance Must be Communicated Silence does not amount to acceptance Acceptance by large companies
Who must receive acceptance? Depends on intention of parties Acceptance usually occurs when the communication
is received in the ordinary course of business or would have been received if ordinary course of business were followed
Copyright Guy Harley 2004
Acceptance Must be Communicated Internet
Electronic Transactions Act
Receipt occurs when it enters the addressee’s designated information system
Otherwise, when it comes to attention of addressee
Copyright Guy Harley 2004
Acceptance Must be Communicated Express Communication of Acceptance is not necessary
where Implied from past dealings between parties Industry custom Acceptance indicated by conduct Unilateral contracts Postal rule applies
Copyright Guy Harley 2004
Acceptance Must be Communicated The Postal Rule
Applies where offeror has expressly or impliedly accepted post as the means of communication of acceptance
Acceptance occurs at time of posting not receipt Applies to all situations where non-instantaneous
communications are used Often determines jurisdiction Berinkibon v Stahag Stahl (S&OR p 86)
Copyright Guy Harley 2004
Acceptance Must be Communicated Mode & timing of acceptance must conform to offeror’s
requirements BUT, nominating a mode of acceptance may not set the
only mode of service Spectra v Pindari
Agent of the person to whom the offer was made may accept on their behalf Powell v Lee (S&OR p87)
Copyright Guy Harley 2004
Has an offer been made? No Contract
Did the offeror intend to revoke
the offer?
Did the offeror communicate revocation?
Has the offer lapsed?
Has acceptance been received by
the offeror?
Was acceptance made under the
postal rule?
Contract
No
No
No
No
No
Yes
Yes
Yes
No
Yes
Yes
Yes
Copyright Guy Harley 2004
Exercise 3.25
Marlena offered to sell her car to John for $78,000.
John said that he would “need some time to think about it” and would “get back” to her.
After 3 days John called and said that he accepted Marlena’s offer.
Marlena informed John that, since she hadn’t heard from him, she had sold the car to Kirsten.
Advise John as to whether he is entitled to the car
Copyright Guy Harley 2004
Exercise 3.27
Baral Ltd is a building materials wholesaler. On Monday, the company received by post an order from a regular customer requesting 3 tonnes of cement gravel to be delivered according to the terms on the order form on Monday week. The company immediately signed the order form and posted back its confirmation that it would deliver on the order as requested. It was usual for these companies to deal by post.
Copyright Guy Harley 2004
Exercise 3.27 (cont.)
The confirmation of order form would usually have taken only a few days to reach the customer but unfortunately, due to a postal strike, the customer did not receive acceptance of the order until Friday night, by which time it had already ordered the same materials from an alternative wholesaler (assuming that Baral Ltd was unwilling or unable to deliver) and faxed Baral Ltd cancelling the order (the fax arrived on Friday night but was not read by anyone from Baral until Monday morning). The customer is refusing to accept the gravel or pay for it. Advise Baral Ltd.
Copyright Guy Harley 2004
Exercise 3.30
Same facts as before Would your answer change if:
The order had been received by email and the return email confirming the order had been slow to reach the customer due to a network failure; only reaching the server on Monday night: by which time the customer had faxed a cancellation of the order
The order had been received by fax and the return fax had not been read by the customer until after the customer had revoked the order by fax