LLB120 NOTES!!!!!!!!!!!!!!
Contents Contract Formation 5 Agreement 5 Offer 6 Willingness to be bound without further negotiation 6 Gibson v Manchester 6 Carlill v Carbolic Smoke Ball Company 7 Pharmaceutical Society v Boots Cash Chemists 9 Propose an exchange of a commitment 10 MacRobertson Miller Airline v Commissioner of State Taxation 10 Australian Woollen Mills v Commonwealth 11 Termination of an Offer 13 Withdrawal 13 Dickinson v Dodds 13 Stevenson Jaques v McLean 14 Goldsbrough Mort & Co v Quinn 15 Lapse 16 Rejection and Counter Offer 16 Unilateral Contracts 16 Mobil Oil Australia v Wellcome International 17 Acceptance 19 Nexus 19 The Crown v Clarke 19 Communication 20 Felthouse v Bindley 20 Empirnall Holdings v Machon Paull 22 Brambles Holdings v Bathurst City Council 23 Manchester Diocesan v Commercial & General Investments 25 Henthorn v Fraser 26 Brinkibon Ltd v Stahag Stahl 27 Electronic Transactions Act 2000 (NSW) 28 Correspondence 29 Butler Machine Tool Co v Ex-Cell-O Corp 30 Consideration 32 Exchange Aspect 32 Australian Woollen Mills v Commonwealth 32 Coulls v Bagot s Executor & Trustee 33 Beaton v McDivitt 34 Sufficient Consideration 35 Woolworths Ltd v Kelly 35 Chappell & Co v Nestle & Co 36 Placer Development v Commonwealth 37 Dunton v Dunton 38! 2
Insufficient Consideration 38 Roscorla v Thomas 39 Pao On v Lau Yiu Long 40 Foakes v Beer 41 Williams v Roffey Bros & Nicholls 43 Musumeci v Winadell 44 Wigan v Edwards 46 Intention to Create Legal Relations 48 Pre-Ermogenous Position 48 Ermogenous v Greek Orthodox Community of SA 48 Domestic Relationships 50 Balfour v Balfour 50 Jones v Padavatton 51 Todd v Nichol 52 Commercial Relationships 52 Rose & Frank Co v J R Crompton 53 Banque Brussels Lambert SA v Australian National Industries 54 Government Agreements 55 Administration of Papua and New Guinea v Leahy 55 Preliminary Agreements 56 Masters v Cameron 57 Certainty and Completeness 59 Completeness 59 Hall v Busst 60 Whitlock v Brew 61 Godecke v Kirwan 62 Certainty 63 Council for Upper Hunter v Australian Chilling & Freezing Co 64 Biotechnology Australia v Pace 65 Meehan v Jones 66 Not Illusory 67 Placer Development v Commonwealth 68 Formalities and Capacity 69 Formalities 69 Conveyancing Act 1919 (NSW) 70 Pirie v Saudners 71 Fauzi Elias v George Sahely & Co 73 Ogilvie v Ryan 75 Capacity 78 Minors (Property and Contracts) Act 1970 (NSW) 79 Estoppel 81 Assumption 82 Waltons Stores v Maher 83 Mobil Oil Australia v Wellcome International 85 Inducement 85 Reliance 86! 3
Knowingly or Intentionally 86 Detriment 86 Je Maintiendrai Pty Ltd v Quaglia 87 Failure to Act 88 Relief Available 88 Giumelli v Giumelli 89 Sidhu v Van Dyke 90 Restitution 92 Action for Money Paid 93 Action on Quantum Meruit 93 Lumbers v W Cook Builders 93 Pavey & Matthews v Paul 95 Brenner v First Artists Management Pty Ltd 97 Privity 99 Third Party Benefits 99 Trident General Insurance v McNiece Bros 99 Applying the Doctrine of Privity 101 Beswick v Beswick 101 Party to the Contract 102 Coulls v Bagot s Executor & Trustee Co Ltd 103 Port Jackson Stevedoring v Salmond & Spraggon 104 Trust 106 Estoppel 106 Restitution 106 Tort 106 Competition and Consumer Act 2010 (Cth) 107 Damages for Breach 107 Specific Performance 107 Exceptions 107! 4
Contract Formation What is a Contract? A contract is an agreement or set of promises that the law/courts will enforce (i.e. for breach of which the law will provide a remedy). Elements of a Binding Contract: 1.! Agreement offer & acceptance 2.! Consideration 3.! Intention to create legal relations 4.! Certainty and completeness 5.! Capacity How Elements are Assessed! The presence of these elements are assessed objectively what a reasonable objective person would believe (Carlill v Carbolic)! Parties intentions are judged by outward manifestations what they have said, written and done and with what a reasonable person would conclude from these words and actions. Agreement Features of an Agreement! In determining if an agreement has been made, the conventional approach is to look for offer and acceptance.! The contract is formed at the time and place acceptance is communicated to the offeror when the parties are ad idem.! It is important to note, that a contract can be made without an identifiable offer and acceptance, provided the parties manifested their mutual assent.! Heydon JA (Brambles Holdings Ltd v Bathurst City Council) concluded that in circumstances where the traditional approach cannot be applied it is relevant to ask: o! Whether in all the circumstances an agreement can be inferred o! Whether their mutual assent has been manifested o! Whether a reasonable person in the position of each of the parties would think there was a concluded bargain! 5
Offer What is an Offer? An offer is an expression of willingness to enter into a contract on certain terms. A proposal only amounts to an offer if the person making it indicates that an acceptance is invited and will conclude the agreement between the parties. Two aspects of an offer: 1.! It must be clear from words & or conduct of the promisor that the promisor is willing to be bound without further negotiation and that a binding agreement would be made upon acceptance. 2.! Must propose an exchange of a commitment to the promise in return for a specified price from the promisee which may be a completed act by the promisee or a return promise from the promisee to do or not do something. These two aspects are determined objectively: how a reasonable person, in the position of the offeree would construe it (Carlill v Carbolic). Willingness to be Bound without Further Negotiation It must be clear that the promisor is willing to be bound to his/her promise without further negotiation and that a binding agreement would be made upon acceptance a.! Offer distinguished from supply of information/ preliminary negotiations o! Gibson v Manchester City Council it was but a step in the negotiations b.! Offer must be sufficiently certain and complete not ambiguous or lacking sufficient certainty (Gibson v Manchester & Mobil v Wellcome) Gibson v Manchester City Council Citation: Gibson v Manchester City Council [1979] 1 WLR 294 House of Lords - Appeal from the Court of Appeal. Material Facts: In 1970, the Manchester City Council adopted a scheme allowing tenants of council housing to purchase the freehold title to their houses. The council wrote a standard form letter to Gibson in relation to the Council house he was renting. The letter said that the council 'may be prepared to sell the house to you'. Gibson completed the application form (leaving the purchase price blank) and returned it to the council. However, the council was soon passed to the Labour Party (opposition) before the formal contracts were prepared. The Council then abandoned the scheme and decided to only complete the sales for which binding contracts were made. Procedural History: The Council denied that there was a binding contract with Gibson, yet Gibson believed there had been and sued to enforce it. The trial judge held that there had been an offer and acceptance, therefore a binding contract had arisen and the Manchester City Council was ordered to sell the house to Mr Gibson for $2,180. The Council appealed to the Court of Appeal and it was dismissed. They then appealed to the House of Lords.! 6
Issue: Whether there was an offer and acceptance to constitute a binding contract. Whether the correspondence between the parties constituted a legally enforceable contract. Whether language that states 'we may be prepared to sell' is definite enough to constitute an offer. Judgement: The judge of the House of Lords was allowed the appeal as he found a contract had not been formed. Reasoning: The wording of the letter sent to Mr Gibson was brought into question as to whether it constituted a binding contract - 'we may be prepared to sell to you' and 'this letter should not be regarded as a firm offer of a mortgage'. It was found that this did not constitute a binding contract as this was 'but a step in the negotiations for a contract which never reached fruition.' (Still in the process of negotiations) Furthermore, Lord Denning rejected the simple notion of a contract as being one of offer and acceptance. Ratio: An offer must amount to a definite promise or commitment to be bound by the terms - offer and acceptance must be definite and clear (not vague, clearly specified, clear who it was intended for). A letter in relation to the sale of the property that says 'we may be prepared to sell' is not definite enough to constitute an offer. An offer must be more than a 'step in negotiations'. c.! Offer distinguished from mere puff - exaggerated sale talk they need to show sincerity in the matter (Carlill v Carbolic) d.! Can an offer be made to the world? o! An offer can be made to the world, as the contract is only made with those who perform (Carlill v Carbolic) Carlill v Carbolic Smoke Ball Company Citation: Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 Court of Appeal - Appeal from Hawkins. Material Facts: The defendants manufactured a device called a 'Carbolic Smoke Ball' that was claimed to prevent colds and influenza. The defendants placed an advertisement stating that they will pay 100 pounds to any person who contracts influenza, cold etc. after having used the ball three times daily for two weeks. They also deposited 1000 pounds into a bank account to demonstrate their sincerity. The plaintiff purchased a smoke ball and used it in accordance with the manufacturers directions from the 20th Nov. 1891 until the 17th Jan. 1892, when she contracted influenza.! 7
Procedural History: The trial judge held that the plaintiff was entitled to recover the 100 pounds. The defendant appealed. Issue: 1. Whether the advertisement was considered as an offer and whether it constituted a binding contract. 2. Whether the terms of offer were too vague. 3. Whether the offer was mere puffery. 4. Whether an offer can be made to the world or must it be made to a specific person. 5. Whether there was sufficient consideration. 6. Whether there was sufficient notice of acceptance. Judgement: The appeal was dismissed and the company was required to pay the 100 pounds. Reasoning: 2. Although the terms are vague, the judge concluded that an ordinary person would have construed it as an offer, and thus that is how it needs to be taken. 3. The advertisement was disregarded as 'mere puff' as the company stated in the advertisement that '1000 pounds is deposited with the Alliance Bank, showing our sincerity in the matter.' 4. Judge argued that even though the offer was made to the world, the contract is only made with the limited portion of the public that perform the condition on the faith of the advertisement. 5. Purchasing of the product is not required, consideration is sufficient as Carlill used the product as per the directions at the request of the company. Furthermore, using is as per the directions is a detriment to Carlill and a benefit to Carbolic as they receive further sales. 6. The defendant argued that there was no notification of acceptance which is necessary to make it a contract but the judge stated that 'it follows from the nature of the thing that the performance of the condition is sufficient acceptance without notification of it'. Ratio: An offer can be made with the world and the notification of acceptance can be waived when they do something to show their sincerity in the matter. Furthermore, if an ordinary person would determine an advertisement to be an offer, then it must be considered as an offer. In a unilateral contract, performance of the conditions is sufficient acceptance and the party does not need to be notified of this acceptance. The definitive language of 'will be paid' also shows the sincerity in the matter as well as the outlining of the instructions and reward as specific terms. e.! Offer distinguished from an invitation to treat (an invitation to others to enter into negotiations) (Pharmaceutical Society v Boots Cash Chemists)! 8
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Citation: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 Courts of Appeal - Appeal from Lord Goddard CJ. Material Facts: The defendant operates a self service shop in one part of which certain drugs were displayed. This part of the shop was under control of a registered pharmacist. A customer would get them off the shelf and take them to the attendant to pay. The pharmacist supervised the transaction and was authorised to prevent a customer removing drugs if he saw fit. The Pharmacy and Poisons Act 1933 (UK) made it unlawful for a person to sell certain drugs unless 'the sale is effected by, or under the supervision of a registered pharmacist'. Procedural History: The Pharmaceutical Society of Great Britain claimed that the sales weren't being made under the supervision of the pharmacist. Issue: Whether Boots was in contravention of the Pharmacy and Poisons Act 1933 (UK) as they were effectively selling drugs without the supervision of the pharmacist. Whether the contract is made when taking the products off of the shelf or when the sale is completed. Judgement: The appeal was dismissed. The sale of drugs did not contravene the act as the contract was not completed until the shopkeeper accepts the offer. Reasoning: It was held that the offer is by the customer to buy the product and it is accepted by acceptance of the price by the shopkeeper. Therefore, the contract is not completed until the shopkeeper accepts the customers offer, which is done so under the supervision of a pharmacist. Thus, there was sufficient supervision in regards to that required in the Act. Ratio: The goods on the shelf are not an offer but an invitation to treat. The offer is made when the customer takes the goods to the cash register and this acceptance is when the shopkeeper approves the purchase.! 9
Propose an Exchange of a Commitment Propose an exchange of commitment to the promise in return for a specific price from the promise which may be a completed act by the promise or a return promise from the promise to do or not do something a.! An exchange of the promisor s promise in return for either o! A return promise from the promisee (bilateral contract) an offer is contractual if there is the relation of a quid pro quo is evident in the doing of the act (AWM v Cth) o! Allows for acceptance from the other party not simply commanding something (Brambles Holdings Ltd v Bathurst City Council) o! The completed performance of an act by the promisee (unilateral contract) i.e. the offer must specify the price for which the promisor s promise can be bought (Carlill and Australian Woollen Mills) b.! Offer distinguished from statements of policy, conditional gifts o! To distinguish between a conditional gift and an offer, a test often applied is to look for an implied request OR ask if the offer is made to induce the doing of the act see Australian Woolen Mills v Cth MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) Case Name and Citation: MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 High Court of Australia - Appeal from the Supreme Court of Western Australia. Material Facts: A person wishing to take passage on MacRobertson Miller Airline Services would be advised of the seats available and the fare. Having selected the flight, the passenger is given the ticket in return for a fare. At the appropriate time, the passenger presented the ticket to secure his or her seat on the flight. According to conditions on the ticket, the airline has the right to abandon or cancel the ticket and the passenger would be entitled to a refund of so much of the fare, proportionate to the part of the flight abandoned. It was necessary for stamp duty purposes to determine whether the ticket was 'an agreement or any memorandum of agreement'. Procedural History: The Supreme Court of Western Australia found that it was an agreement. The airline appealed this. Issue: Whether or not the ticket constituted 'an agreement or any memorandum of agreement'. Whether the offer is accepted on purchasing of the ticket or when boarding the plane.! 10
Judgement: Appeal was allowed and therefore the stamp duty did not need to be paid. Reasoning: The judge recognised that the tickets were an example of a unilateral contract and the airline could only 'retain the prepaid fare' 'dependent on the actual performance of the carriage'. Furthermore, 'the airline operator was not in contractual relations with the intending passenger until it had provided him with a seat on the aeroplane'. Therefore, the offer is only accepted on performance and stamp duty cannot be paid until acceptance and the presence of a binding contract. Ratio: A contract is not binding in a unilateral contract until the offer has been accepted by actual performance or conduct. Australian Woollen Mills v Commonwealth Citation: Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424; Privy Council (1955) 93 CLR 546 High Court of Australia - Action Material Facts: The plaintiff claimed that the unilateral contract had arisen out of the Commonwealth government's wool subsidy scheme. In 1946, the Commonwealth announced in a series of letters to manufacturers, including the plaintiff, that it would pay a subsidy on all wool purchased for domestic use by Australian manufacturers. In June 1948, the Commonwealth announced that it would be discontinuing the scheme, but would ensure that each manufacturer had a certain amount of wool subsidised. The stockpile by AWM exceeded this amount, and so the Commonwealth required they repay the subsidy paid on the excess. The AWM repaid the amount, but later sued to recover it, along with the unpaid subsidy on April, May and June purchases. Procedural History: Australian Woollen Mills paid the subsidy on the excess stock to the Commonwealth but sued to recover it, along with the unpaid subsidy on April, May and June. Issue: Whether the letters sent to the plaintiff constituted a unilateral agreement and therefore whether the Commonwealth should have to pay the subsidies. Judgement: The appeal was dismissed, therefore the Commonwealth did not need to repay the subsidies to the company.! 11
Reasoning: The judge stated that the Commonwealth had not intended to create legal relations, and 'in the absence of such an intention, actual or imputer, the alleged offer cannot lead to a contract'. There was no consideration, thus a contract is not formed as there was no exchange. Ratio: To distinguish between conditional gift and a contractual offer you need to see if there was consideration and thus a request from the offeror to the offeree.! 12
Termination of an Offer An offer may have ceased to be effective at the time of a purported acceptance because it has: a.! Been revoked (withdrawn) b.! Been rejected c.! Lapsed Withdrawal i.! An offer may be revoked at any time before it is accepted (Goldsbrough Mort v Quinn and Dickinson v Dodds) Dickinson v Dodds Citation: Dickinson v Dodds (1876) 2 Ch D 463 - English Court of Appeal Material Facts: On 10th June Dodds delivered a document to Dickinson which stated that he would sell a property for 800 pounds and that the offer would be open until the 12th June. Dickinson was informed by a third party that Dodd's had been offering or agreeing to sell the property to Allan (another defendant) and thus went to his house and left with Dodd's mother in law a formal written acceptance, however he did not receive this letter. The following day (12th) Dickinson found Dodd's and gave him another copy of the letter, however, he replied it was too late as he had sold the property to Allan the night before. Procedural History: Vice Chancellor Bacon held that there was a binding contract and therefore Dodds was ordered to sell his property to Dickinson. Dodd's appealed this decision. Issue: Whether the correspondence from Dodds constituted an offer and if an offer exists, could he revoke his offer. Whether if it was sufficient for a third party to inform Dickinson that Dodds has revoked the offer. Judgement: The appeal was allowed. Dodd's no longer had to sell his property to Dickinson.! 13
Reasoning: The document was nothing but an offer, and was only intended to be an offer. While there was the memorandum to leave it open until the 12th, there was no consideration given and it therefore was not considered a bound offer. Thus, Dodd's was free to withdraw. Dodd's did not notify Dickinson of his withdrawal, however he had been notified by a third party. In addition to this, the third party was a reliable source (Dickinson's agent), however, if the source was not reliable, it would be determined by what a reasonable person would think. Ratio: An offeror can withdraw an offer at any time prior to acceptance, except when there has been consideration. If an offeror withdraws their offer, there must be notification of this withdrawal. However, if the offeree is aware of the withdrawal, this also counts as a notification. ii.! The withdrawal of an offer is only effective when it has been communicated to the offeree (Stevenson Jaques v McLean) Stevenson Jaques v McLean Citation: Stevenson, Jaques and Co v McLean (1880) 5 QBD 346 - Queen's Bench Division Material Facts: McLean wrote to Stevenson Jaques (SJ) offering to sell iron. On Monday morning, SJ sent a telegram asking if he would accept 40s for delivery over two months. No answer was sent by McLean but after receiving the telegram they sold the warrants to another buyer and later that day informed SJ what he had done. Before they received the telegram SJ sent a further telegram saying they had secured his price. SJ claimed that the last telegram was an acceptance of the offer and sued for damages for non-delivery. Issue: Whether the language used constituted a counter offer or a request for information. Whether the offer could be revoked. Judgement: Judgement for the plaintiffs (SJ). Reasoning: SJ's telegram was only an inquiry and that is how it should have been regarded - 'there is nothing specific by way of offer or rejection, but a mere inquiry.' If the offer is not retracted (which it hadn t been), the offer is still in force. Furthermore, if the offer had been revoked, it must be communicated and therefore as there was no communication, the offer was still standing.! 14
Ratio: Revocation is only effective when it is communicated to the offeree - 'an uncommunicated revocation is, for all practical purposes and in point of law, no revocation at all'. An inquiry does not amount to rejection of an offer - 'there is nothing specific by way or offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer'. iii.! A promise to hold an offer open is binding at common law if consideration has been given in return for that promise. The agreement between the parties is then described as an option. The option holder is then free to choose whether to exercise the option at that time or within that period (Goldsbrough Mort v Quinn). Goldsbrough Mort & Co v Quinn Citation: Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 High Court of Australia - Appeal from the Supreme Court of New South Wales. Material Facts: Quinn granted the right to purchase the freehold title of his land to Goldsbrough, Mort & Co for 1 pound 10s per acre. He allowed Goldsbrough one week to accept the purchase and Goldsbrough paid him a sum of 5 shillings as consideration. Before the expiration of the week, Quinn informed Goldsbrough's solicitor that he renounced the offer, alleging it had been made under mistake. Without any notice of this, Goldsbrough accepted the offer within the week. Procedural History: Supreme Court judge held that it wasn t an agreement for the sale of land, there was another agreement first and only damages were payable. Goldsbrough appealed. Issue: Whether the term 'subject to usual terms and conditions of sale relating to such lands' is too vague and uncertain to constitute an offer. Whether an offer can be revoked before the specified time period after consideration has been provided. Judgement: Appeal allowed. Goldsbrough Mort & Co were entitled to the benefits of the contract, that is, they were allowed to purchase the freehold title of the land for 1 pound and 10s per acre.! 15
Reasoning: By paying 5 shillings, it created an option to accept the land within one week. Once accepted, it then becomes a contract for the sale of the land. The option is not analysed as a separate contract, but merely something to keep the offer open for a specified period of time. An offer can be withdrawn prior to acceptance. However, if consideration has been made, the promise is binding and cannot be withdrawn. Ratio: An offer can be withdrawn at any time before acceptance, except in the situation where an option has been made as consideration. An offer cannot be revoked before the expiry of the specified time period where an option has been made. Lapse An offer which is expressed to be available for acceptance for a particular period of time will lapse at the end of their period. If no period is stipulated, the offer will lapse after a reasonable time has passed. What period of time is reasonable will depend on the circumstances, including the nature of the subject matter and the form of which the offer was made. Rejection and Counter Offer Once an offer has been rejected, it is no longer available for acceptance, A rejected offer may, however, later be revived or may form the basis of an agreement which is inferred in the absence of a valid offer and acceptance. The making of a counter offer is treated as a rejection of the original offer and will therefore also extinguish it. However, the courts drawn a distinction between a counter-offer and an inquiry relating to an alteration of the terms. By requesting information, the offerer is not intended to reject the offer (e.g. Stevenson Jaques and Co v McLean)! Stevenson Jaques and Co v McLean there is nothing specific by way or offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer Unilateral Contracts The revocation of an offer to enter into a unilateral contract raises difficult questions. There is no difficulty if the offer is withdrawn before the offeree begins to perform. The difficulty arises where the offeree has begun to perform, but has not completed the acts that constitute acceptance. It has been held that an offer made in exchange for the doing of an act becomes irrevocable once the act has been partly performed.! In unilateral contracts, an offer can be revoked any time prior to acceptance unless there has been an implied ancillary contract found.! 16