LAW 241 Law of Contract Introduction to the Law of Contract Alex Bond PUBLIC PRIVATE Constitutional Law Administrative Law Criminal Law Law of Property Law of Persons Law of Obligations Land Personal Property Marriage Divorce Adoption Family Contract Tort Unjust Enrichment How do we distinguish between Contract, Tort and Unjust Enrichment? Contract obligations stem from consent. You are under an obligation because you have consented. On the other hand, Tort and Unjust Enrichment are effectively imposed on you by the law, e.g. the Law of Torts says you cannot convert someone else s property. The basic difference between Tort and Unjust Enrichment is that Tort is about making better the plaintiff s losses (i.e. is compensatory/loss-based) whereas Unjust Enrichment is about taking gains from the defendant. The most difficult questions relate to how these categories overlap. Can you have cases giving rise to both tortious and contract liability? This is a question answered to some degree in LAW.231 but not in this paper. The touchstone of the law of contract is voluntariness. How do you determine when voluntariness exists, and what precisely it is that you have consented to? How do you ever know if two parties are subjectively agreeing to something? An OBJECTIVE conception of agreement is used in contract law: a ubiquitous, reasonable man. If objectively viewed from that third party objective it appears that two parties have agreed, the law says there is an agreement, even if in their minds (subjectively) the parties did not agree. Smith v Hughes (1871) LR 6 QB 597 will make this clear. If you can show that there is a binding agreement, then essentially we want to protect that agreement as much as possible. The law has structured the remedies for breach of contract in such a way that it does protect your profit under the contract. How much can we get for our clients at the end of the day? Try to build links between cases. Contract law is only concerned with agreements that the law considers enforceable. Both parties have to give consideration for a contract to be legally enforceable. We subscribe to a liberal or hands-off conception of contract law (a liberal theory of freedom of contract, we can agree to anything). There are some limits, e.g. the law will not allow you to do something which is illegal or contrary to public policy. If we stuck to that traditional stance, you run the risk of always having one party stronger economically. You have the risk that the weaker party in the contractual relationship is always going to be put upon by the stronger party. Increasingly there is a shift away from our classical theory of freedom of contract. We are introducing legislation that shifts the balance in favour of the consumer or weaker party. EXAMPLES (1) Consumer Guarantees Act 1993 Says if you go into a shop and buy goods or services from a trader, those goods or services must be of an acceptable quality. (2) Credit Contracts and Consumer Applies every time you apply for a credit card, requiring banks Finance Act 2003 to jump over certain hurdles to ensure you are protected.. (3) Fair Trading Act 1986 People who sell goods and services cannot engage in misleading conduct as to the price, display and advertising of goods. Course Structure Semester One How is a contract formed? 1. Agreement: How to transfer any normal agreement into a legal agreement. 2. Contractual certainty and completeness: The parties need to agree on all of the essential terms of the contract for it to be enforceable. 1
3. Consideration: Each party must give or promise to give something under the contract. A promise to give or make a gift is unenforceable. 4. Intention to create legal relations: This requirement exists to exclude social relations. 5. Form or formalities: Most agreements are aural. There are only two situations where a contract must be in writing; (a) contracts concerning the sale of land, (b) contracts concerning guarantees. You can create a contract that is either unilateral or bilateral. A unilateral contract is one for which only one party makes a promise, e.g. I promise to pay you $100 to walk from Auckland to Wellington: a promise in return for an act. A bilateral contract is one where both parties are making promises to one another, e.g. I promise to pay you $100 if you give me that vase. Semester Two What are the contents of that agreement? 6. Terms: Express terms: Those terms that are formally set out in the agreement or formally stipulated. The issue of exclusion clauses is considered; should exclusion clauses as a matter of policy be excluded from contracts? The law says they are enforceable if you clearly say you are excluding your contractual liability to the other party. Implied terms: Are we limited by those express terms, or can the court add to the contract? Can the court imply terms that are not stated? Yes, it can. The courts have said they will only imply a term or add to the contract if it is absolutely necessary. They have established a strict test of necessity: if you ask both parties whether they would have agreed to the term, and they say yes, then you have scope to imply the term. 7. Vitiating factors: Misrepresentation: The argument you lied to me, i.e. you said something false that made the other party enter into this contract. This factor will only operate if you lie about a past or present fact. If you lie about the future, the law or your opinion, there is no relief: the other party cannot escape the contract. The courts have struggled in determining what acceptable and unacceptable lies are. Mistake: There are three types of mistake: unilateral, common and mutual. This distinction does not exist in the UK. But in New Zealand we have an Act that governs mistake. It is critical which category you class a mistake as. A unilateral mistake occurs where one party makes a mistake. A common mistake occurs where both parties make the same mistake. A mutual mistake occurs where both parties make different mistakes. Frustration: The argument this contract did not turn out as I had expected / I didn t expect that to happen. The effect that unexpected subsequent events can have on the contracting parties. The frustration doctrine has to be extremely narrow, whatever has frustrated the contract must be something particularly bizarre. [Duress]: Although duress is a vitiating factor, it will be considered in Semester 1, in conjunction with Consideration. This is the argument I only contracted with you because you threatened me. Not every type of duress operates to cancel the contract. If a party puts a gun to the head of the other party, the other party can get out of it: duress to the person. The courts have also suggested that duress to property could count. The difficult question is can economic duress count, e.g. threatening to sack a party/threatening to not pay money back? Until 1976 the courts said there was no concept of economic duress, but slowly since 1976 it has been accepted that economic circumstances can impose an equivalent pressure on you as duress to property. These vitiating factors produce different consequences on the contract. Each could render the contract either: (1) void; (2) voidable; or (3) unenforceable. A void contract is one that the courts pretend never existed. A voidable contract is one where the party being wronged has a power to unwind or avoid the contract. An unenforceable contract is a perfectly valid contract, which neither party can get out of, but the court might say in some circumstances it will not help the parties to enforce the contract; the court will hold back enforcement powers 2
1. AGREEMENT (OFFER AND ACCEPTANCE) Alex Bond To verify the existence of an agreement can t we just ask the parties involved that there was a contract? No, as parties would swear blind on opposites. By virtue of the fact that parties have diametrically-opposed litigations, you cannot trust what they are saying. How do you look into a contracting party s mind and see whether or not they have agreed to something? We will see immediately that we are not concerned with what the party s have actually agreed that is an impossibility courts will fall back onto the best evidence they have of an agreement. The best evidence is to look not into the parties minds but to look into their statements, conduct and general demeanour. The court focuses on whatever external or objective evidence that is available that might signify an agreement. The test the courts ultimately apply is to put themselves in the shoes of the reasonable man: would the reasonable man consider, looking at that objective evidence, that there is an agreement or not? 1.1 OFFERS 1.1.1 Nature of an Offer An offer is defined as an expression of willingness to be legally bound, on certain terms, without further negotiation. An offer may be made to an individual or to a particular group of individuals, or to the world at large. The key principle to note is that conduct amounts to an offer if a hypothetical objective bystander would construe it as such, regardless of the intentions of the offeror: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. This objective approach to contract formation means a party can incur a contractual obligation against his or her own will. Smith v Hughes (1871) LR 6 QB 597 The leading case dealing with the objective principle. The problem notable in the facts of this case seemed to be a disagreement between the parties as to the type of oats wanted. The vendor Smith was selling new oats, the purchaser Hughes wanted to buy old oats. Did that lack of agreement prevent that contract? At first instance the jury had found for the defendant, but the jury had not indicate which of the two questions it was answering for. The questions were: 1. When the parties contracted, did they use the word old? If so find for the defendant. 2. Should the mistake the purchaser made affect the existence of the contract? The basis of this appeal is that we do not know the basis upon which the jury found for the defendant. The issue is to try and determine the basis upon which we could find for the defendant. Only if you can find both questions in favour of the defendant could you uphold the decision for the defendant. Otherwise there is a mistrial. How does Cockburn CJ deal with these two questions? 1. If the word old was used, the defendant has to win, as they had stipulated for old oats. 2. On the basis of the reasonable man, it looks like the two have contracted. It only remains to deal with an argument which was pressed upon us, that the defendant in the present case intended to buy old oats, and the plaintiff to sell new, so that the two minds were not ad idem; and that consequently there was no contract. This argument proceeds on the fallacy of confounding what was merely a motive operating on the buyer to induce him to buy with one of the essential conditions of the contract. Both parties were agreed as to the sale and purchase of this particular parcel of oats. The defendant believed the oats to be old, and was thus induced to agree to buy them, but he omitted to make age a condition of the contract. All that can be said is, that the two minds were not ad idem as to the age of the oats; they certainly were ad idem as to the sale and purchase of the oats. He is saying there is clearly a contract for the sale of oats, from an objective perspective, but there is not a contract for the sale of old oats. What is the policy reason for which Cockburn adopts this approach? If every time you enter a contract and received dodgy goods, you could get out of that contract. There would be no contracts. We say there is a contract in place to start with, and we will deal with those quality issues later down the line. 4
Blackburn J adopts the same analysis as Cockburn J. He agrees with Cockburn that if the word old is used, you have to find for the defendant. He also agrees also on the second point. The judgment of Blackburn J is the classic authority for the objective test. But I have more difficulty about the second point raised in the case. I apprehend that if one of the parties intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. The rule of law is that stated in Freeman v Cooke If, whatever a man s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party s terms. i.e. Regardless of the purchaser s (Hughes ) real intention to buy old oats, he so conducted himself that a reasonable man would have believed that he was assenting to the offer to buy the oats from the vendor (Smith). When the vendor on that belief entered the contract with him, the purchaser became equally bound as if he had intended to buy the oats. The critical point: it is not what you subjectively think but how you conduct yourself. However there is a subtlety in Blackburn J s judgment which missing from Cockburn CJ s. Blackburn J identifies the situation where mistake may have some relevance. He draws a difference between two types of mistake: 1. A mistake about the subject matter of the contract; or 2. A mistake about what the other person (here the purchaser) is promising. In other words, a mistake between whether Hughes is buying old oats or promising to buy old oats. The first mistake according to Blackburn J can never operate to allow a party (here the purchaser Hughes) to get out of the contract. But if you are mistaken as to what the other party is promising, that can sometimes on rare occasions allow you to escape the agreement. But I doubt whether the direction would bring to the minds of the jury the distinction between agreeing to take the oats under the belief that they were old [mistake as to subject matter], and agreeing to take the oats under the belief the plaintiff contracted that they were old [mistake as to what other is promising]. The difference is the same as that between buying a horse believed to be sound [mistake as to subject matter], and buying one believed to be warranted sound [mistake as to what other is promising]; but I doubt if it was made obvious to the jury, and I doubt this the more because I do not see much evidence to justify a finding for the defendant on this latter ground if the word old was not used. Blackburn J is drawing a line on policy grounds. If we allowed mistakes as to subject matter, we would never have contracts, as the party trying to escape the contract could always say I thought the quality would have been better. Secondly it gives some scope for mistake to operate without undermining contract law. But it is not enough that you are simply mistaken to what you are being promised, there must be knowledge of the mistake on the other side. This need for knowledge is clear in the judgment of Hannen J. Hannen J: If, in the present case, the plaintiff knew the defendant, in dealing with him for oats, did so on the assumption that the plaintiff was contracting to sell him old oats, he was aware that the defendant apprehended the contract in a different sense to that in which he meant it, and he is 5
thereby deprived of the right to insist that the defendant shall be bound by that which was only the apparent, and not the real bargain. In other words he is saying If I contract with you knowing that you have made a mistake in contracting with me, I lose the protection of the objective principle. Why should I be able to insist on the appearance of an agreement when I know there actually was not an agreement? Arguably we can take three principles from this judgment: 1. An agreement is determined objectively. 2. Mistake is an extremely narrow doctrine. 3. You can never escape a contract for a purely unilateral mistake, it is only if the party knows of your unilateral mistake that it can be relevant. (Quotation from text The Law of Obligations ): Under the principle in Smith v Hughes, A is estopped from denying the existence of a contract if A led B to enter into the contract on the assumption that A was assenting to B s terms. Offer and Acceptance Analysis Smith v Hughes helps us identify the evidence we look at in determining an agreement, but once we have the evidence, we still have to find some kind of analytical framework within which we can determine whether there is an apparent agreement. We will see that the law provides us with a fairly rigid analytical framework or series of rules to determine whether there is an agreement. This analytical framework is called Offer and Acceptance analysis. You need an offer and a corresponding acceptance. (Following is taken from Rick Bigwood coursebook, page xvii): It is fair to say that every agreement is an accepted offer. It takes the form of a proposal by one party to the other(s) the offer that is assented to by that (those) other(s) the acceptance. It is helpful to view the offer as the creation of a power (of acceptance) in the offeree, and the acceptance simply as an exercise of that legal power. 1.1 Is there a valid offer? [x2 questions] (a) Does the statement at issue fall within the definition of what constitutes an offer? In order to do that we need a working definition of what an offer actually is: An offer is defined as an expression of willingness to be legally bound, on certain terms, without further negotiation. Whether something is an offer or not is basically a question of intention. Does the party making the statement intend to be bound on those terms without further negotiation? There can be an offer or an invitation to treat. We have to decide which statements are which. An invitation to treat is a statement which invites other parties to make offers, and is not an offer in and of itself. (b) Assuming there is an offer, is that still valid, or has it been revoked? There are three ways an offer can be rendered invalid: either (1) by being withdrawn and by you being given notice of that withdrawal; (2) by lapse of time; and (3) if a counter-offer is made. 1.2 Is there a corresponding acceptance? (a) The acceptance must be on faith of the offer. You have to be responding to the offer when you make the acceptance. (b) Mirror-image principle. The offer and acceptance have to match precisely, if they do not there is no acceptance (e.g. counter-offer). (c) Requirement of communication. Silence does not constitute acceptance, you have to tell the offeror that you as the offeree are accepting the offer. There is one very strange exception to this rule the postal rule if you accept a contract by post, the acceptance doesn t take effect when it is received by the offeror but rather when you post it. [Note that lecturer finds this rule archaic, irrelevant to today, should be ridden of] 6
How can we classify a particular statement as an offer? Alex Bond Harvey v Facey (1893) AC 552 (PC) This is a Privy Council decision so is highly persuasive, but not necessarily binding on New Zealand courts. The exchange between Harvey and Facey, which took place on the same day, was as follows: 1. Harvey sends a telegram to Facey stating Will you sell us Bumper Hall Pen? (1) Telegraph lowest cash price (2) answer paid. 2. Facey replies by telegraph starting 3. Harvey replies by telegraph stating We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession. Harvey argued that Facey s telegram constituted an offer and Harvey s telegram constituted acceptance of that offer. Facey won at first instance. Harvey won on appeal in the Jamaican Supreme Court. That decision is overturned in this case by the Privy Council. Legal issues, stated in logical order: Whether there is a binding contract for the sale of land (Bumper Hall Pen). Whether there was an offer made by F to H to purchase the land. Whether the second telegram was an offer accepted by the third telegram. Whether the second telegram reflected an intention on F s part to be bound. The Privy Council says no, the second telegram did not reflect an intention of Facey s part to be bound. The court looked at the first telegram and noted that two questions were being asked. The first enquired as to the willingness of Harvey to sell the land and second enquired as to its price. In the second telegram Facey is only clarifying a price. He has not expressly indicated an intention to sell, nor are the Privy Council prepared to imply an intention to sell. Just because you give a lowest price does not mean you wish to sell at that price. Their Lordships are of opinion that the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at that price to the persons making the inquiry. According to the Privy Council, the third telegram from Harvey is an offer but it has not been accepted by Facey (no fourth telegram): Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an offer to sell to them; it is an offer that required to be accepted by LM Facey. This case bolsters Smith v Hughes. At no point does the Privy Council enquire as to what the parties actually intended. It looks solely to the documents provided. A good example of a court applying the objective principle. Gibson v Manchester City Council [1979] 1 WLR 294 (HL) Gibson gives rise to the same issue seen in Harvey v Facey: whether or not an offer has been made. The case concerned an alleged contract for the purchase of a council house. The conservative government had a policy that council tenants should be able to purchase their houses. A change in government lead to the cessation of this policy. The exchange between Gibson and the council was as follows: (x5 relevant documents) 28/11/1970: Gibson writes to the council requesting details of the price of his council house if he were to buy it. The Genesis of the relevant negotiations in the instant case is a form filled in by Mr 7
Charlestown Road, Blackley, and expressing his interest in obtaining a mortgage from the council. 10/02/1971: Gibson receives a brochure from the council which has a letter setting out the details of how he can purchase his house (set out on page 5 coursebook). This is probably the key piece of correspondence. Gibson argued this as offer. The corporation may be prepared to sell the house to you at the purchase price of.this letter should not be regarded as a firm offer of a mortgage if you would like to make a formal application to buy your council house, please complete the enclosed application form and return it to me as soon as possible. 05/03/1971: Gibson fills in the application form, leaving the price blank and returns it to the council with a covering letter raising a query about the tarmac outside of his house and whether or not this affects the purchase price. Gibson argued this as part of acceptance. 12/03/1971: Council sends a letter back to Gibson stating that the repairs to the tarmac is included in the price stated in the 10/02/1971 letter. 18/03/1971: Gibson sends a letter back to the council asking to proceed with the purchase. Gibson argued this as part of acceptance. Harvey v Facey showed how factually sensitive or factually intensive an agreement is. The language of a letter can entirely determine the result. The Gibson case is the second example of this. Gibson alleged a binding contract between himself and his council as to the sale of his house. The House of Lords had to decide from the five relevant documents stated above whether there was a binding agreement to sell the property. Gibson argued that the council letter dated 10/02/1971 was the offer and the application form completed in March combined with the letter on the 18/03/1971 was the acceptance of that offer. The first instance court decided in favour of Gibson. It clearly thought there was a contract and granted the specific performance remedy. Gibson won again in the Court of Appeal: a 2:1 split. The majority were in favour of Gibson but Geoffrey Lane LJ dissented. In the Court of Appeal case we have to focus on the approach of Lord Denning. What does Lord Denning do? He rejects the conventional approach. He looks at all of the correspondence as a whole and decides there from whether you can tease a contract out of it. The conventional traditional approach is rigid and mechanical, and requires one to show an offer and an acceptance (we have been adopting this method so far). Lord Denning seems to favour what has come to be known as the global approach. He rejects the application of the rigid offer and acceptance analysis, essentially fudging it. You look at the correspondence as a whole, and decide whether you can tease an agreement out of it. You should look at the correspondence as a whole and at the conduct of the parties and see therefore whether the parties have come to an agreement on everything that was material. If by their correspondence and their conduct you can see an agreement on all material terms, which was intended thenceforward to be binding, then there is a binding contract in law even though all the formalities have not been gone through. [Lecturer commentary] Denning was one of the best English judges but had a horrible tendency of annoying principle in order to get to the just result. He tended to invent his own doctrine and apply it later. Denning often went head-to-head with the House of Lords. He pushed forward the global approach because he wants to reach the most just result on the facts of each case. What do we think of the global approach? It is a very uncertain approach. The mechanical approach operates on basis of the mirror image principle. Denning suggests courts can look at everything and pick 8
the terms the parties might have actually agreed upon. Because you don t have a mirror image document coming from each side, courts could construct a contract/impose a contract on the parties which the parties did not think they had agreed to at all. What does Lord Diplock make of Denning s approach? Diplock clearly says we should not follow the global approach, that we should rather adopt the rigid mechanical offer and acceptance analysis. I can see no reason in the instant case for departing from the conventional approach of looking at the handful of documents relied on as constituting the contract sued on and seeing whether on their true construction there is to be found in them a contractual offer and acceptance I venture to think that it was by departing from this conventional approach that the majority of the Court of Appeal was led into error. Adopting the traditional approach, does Lord Diplock consider there to be an offer? He decides entirely on the construction of letter dated 10/02/1971. The letter does not show intention to be bound on these particular terms. My Lords, the words I have italicised seem to me, as they seemed to Geoffrey Lane LJ, to make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable contract for the sale of land by Mr Gibson s written acceptance of it. The wording of the letter is inherently vague and uncertain, is phrased in noncommittal language and inconsistent with the existence of the offer. It is more like an invitation to treat. But could Mr Gibson s letters count as offers? Diplock said they may or may or not, but he doesn t need to consider the issue because there is no acceptance from the council. Lord Edmund-Davies and Lord Russell follows the approach of Lord Diplock. Lord Keith agreed with Diplock. Lord Fraser agreed with Diplock and Russell. Essentially there is a unanimous House of Lords saying there is no contract. Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 (CA) So far we have considered English and Jamaican decisions. Boulder is a New Zealand decision. The exchange between Boulder and Tangaere was as follows: 21/12/1976: B s solicitor wrote to T saying it was impossible to buy lot 203, and to choose again or accept a refund. T argues as part of offer. 08/03/1977: T writes to B saying he is prepared to transfer to another lot and enquired as to what other sections were available. He asks if there was someone who could accompany him to view the available sections. Shortly after 08/03/1977: Boulder replies and gives a list of possible lots that the plaintiff could choose. Handwritten note. [No reply from T to this note] T argues as part of offer. 15/06/1977: Boulder writes again. 21/07/1977: T wrote advising he wanted to take lot 138. T argues as acceptance. The New Zealand Court of Appeal has to ask whether it can find a contract for the sale of land from this correspondence. T argued that a combination of the handwritten note and the letter of 21/12/1976 constituted the offer. He argued that the final letter dated 21/07/1977 constituted acceptance. What did the judge Quilliam J decide at first instance? He found that there was a binding contract. He believes the correspondence gave rise to a contract. McMullin J in this case did not agree that there was a relevant offer here. On the view which I have formed Boulder is entitled to succeed on its first main submission which is that the note with the list of sections taken 9
by itself or with the other correspondence, did not constitute an offer to sell lot 138 to Mr Tangaere and that there was therefore no concluded contract.. McMullin J sets out four key principles that we can use in determining whether there is an offer and matching acceptance: 1. Whether the existence of an agreement can be inferred from an offer and acceptance depends on whether one party may be assumed to have made a firm offer and the other party to have accepted (i.e. the conventional/traditional approach). 2. An offer to treat is distinguished from a binding offer primarily on the ground that is not made with the intention that it shall become binding as soon as the person to whom it is addressed simply communicates his assent to its terms (i.e. we have to draw a distinction between offers and mere invitations to treat). 3. In deciding whether there have been a defined offer by the one party and an acceptance by the other the Courts must apply an objective test. An apparent meeting of the minds ( ad idem ) is sufficient to establish a consensus. The New Zealand Court of Appeal is restating Smith v Hughes: we not concerned with actual agreement but apparent agreement. 4. No acceptance of any offer can constitute a contract unless there is first a contractual offer available for acceptance (cites Gibson). Of these four principles, McMullin J considers himself to by applying the fourth in this case. I cannot think that the correspondence should be construed as an offer to hold each section in the list for Mr Tangaere to accept at such time he wished Rather do I think that it did no more than indicate the various sections which Mr Tangaere could consider as a basis for a possible sale, making it clear the final choice could only be reached after discussion with Mr Quirk at the site. I would, therefore, apply the principle that no acceptance of any offer can constitute a contract unless there is first a contractual offer available for acceptance (Gibson ) and would hold that Boulder s letters feel short of contractual offers and amounted to no more than offers to treat. McMullin J s judgment is a model as to how to apply the traditional offer and acceptance analysis. Cooke J agrees with McMullin J in terms of the conclusion, but he applies Lord Denning s global approach as opposed to the conventional/traditional approach. Cooke cites two decisions. First he cites Lord Diplock in Gibson, which is authority for the traditional analysis. Secondly he cites from the judgment of Lord Wilberforce in NZ Shipping Company Ltd v A M Satterthwaite & Co Ltd [1975] AC 154 (referred to as The Eurymedon, the name of the ship the case was concerned with): English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration. Cooke J states a mechanical analysis in terms of offer and acceptance may be less rewarding than the test whether, viewed as a whole and objective, the correspondence shows a concluded agreement. On either approach the point of view of the reasonable man in the shoes of the recipient of each letter is of major importance. He is clearly showing some sympathy for Denning s global approach. On an objective test and the practical approach favoured by Lord Wilberforce in the New Zealand Shipping Company case, I would have thought it unreal to construct a contract out of such materials. On the face of the correspondence the parties were never ad idem. We see in this short passage that he is adopting not the traditional approach but the global approach. 10
Richmond J agrees with both McMullin and Cooke JJ. Can he do that? No, because the two have different lines of reasoning. Richmond J should have made clear if he wanted to distance himself from the global approach. Boulder is a difficult approach. Gibson and Boulder tell us that whether there is an offer depends on the traditional offer and acceptance analysis, and that the cases are factually intensive. Do you agree with Gibson? I agree that the council should have won. If you look at the wording of the letter, it is so conditional/tentative/couched in noncommittal language that it could not be construed properly as an offer. Hidden policy factor: don t want to interfere with decision of the executive, the council. Possible explanation for why they went in that direction. Do you agree with Boulder? Yes. There wasn t a contract. As McMullin J says, Boulder wouldn t have held onto all those properties for Tangaere. The commerciality of what was being suggested would have weighed quite heavily. Boulder is the first case where we see the court properly applying the global approach. This is a problematic decision due to the ambiguous judgment of Richmond P. If Richmond P supports Cooke J then the global approach is the law in New Zealand. Question: even if we accept that there is a global approach, was it right for Cooke to apply the approach on these set of facts? The Eurymeden case is factually a very different case to this. That case involved a seller, a carrier and a stevedore = carriage contract between seller and carrier and stevedore contract between carrier and stevedore. But the seller sued the stevedore. But, we say, isn t this impossible, as there is no contract between the seller and the stevedore? Because of this the seller sued the stevedore in negligence. Stevedore argued that he was protected from liability by an exclusion clause. But the exclusion clause was in the contract between the seller and carrier. The stevedore is not party to that contract. The Privy Council said even though the stevedore is not party to the exclusion clause, he could rely on it. The Privy Council did this by creating a contract between the seller and the stevedore. But how could the Privy Council find specific offer and acceptance? The Privy Council says the seller makes an offer that is communicated to the stevedore through the carrier and the offer is, if you unload these goods, you are protected by the exclusion clause. The stevedore accepts that offer by unloading the goods. The Privy Council adopted a fairly traditional offer and acceptance analysis. But you have to wonder what Cooke is playing at. You do find some statements that the traditional analysis is difficult. But the authority that Cooke relies upon as authority for the existence of the global approach is very weak indeed. This lecturer s view is that there is some scope for a global approach, but the only time you should use the global approach is when the offer and acceptance analysis fails. Neither the Eurymedon case nor Boulder was such a case. We will look to the case Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd where there may be some scope for the global approach. The court in that case used the global approach as a result of a battle of forms. Lord Denning in that case said we could use the global approach. In a test, don t just apply the global approach. In all cases so far we have had to start our analysis from scratch. However this situation does not arise in every case. The courts have laid down some prima facie rules that will apply in certain common everyday situations. This means we don t have to start our analysis from scratch every time. We rely on these rules of thumbs. e.g. Does a display in a shop constitute an offer? Does a bid at an auction constitute an offer? Does a building quote received constitute an offer? The first of these analytic frameworks relate to the situation where you have goods displayed in a shop window, or on a counter behind the counter staff. When you display goods, is that an offer to sell the goods or are you simply inviting offers to be made by your customers? 11
The leading case that deals whether or not display of goods constitutes an offer or invitation to treat is Fisher v Bell. The defendant in that case displayed a flick knife in his shop window, the only thing attached to it was a label stating ejector knife, 4 shillings. The defendant was charged with offering an offensive weapon for sale, pursuant to the terms of the Offensive Weapons Act 1959. If you looked at the terms of the offence, you could only be convicted if it could be shown that you were offering an offensive weapon for sale. It raised directly this question: does the display of the flick knife amount to an offer for sale? Lord Parker said no, the display of goods in a shop window is nothing more than an invitation to treat. If the display of goods is the invitation to treat, when the customer says what he wants, that is the offer. When the counter staff says thank you for the sale and asks for payment, that is the acceptance. The contract is only formed at the till. The difficulty that arose however with the introduction of self-serve setups. Does this traditional analysis in Fisher apply equally in a self-service setting? That was the exact issue that came before the court in the Boots case below. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 Two female customers came into a self-serve pharmacy to buy non-prescription drugs which contained a small amount of poison. The core issue: were effected by or under the supervision of a registered pharmacist, in accordance with the provisions of section 18(1)(a)(iii) of the Phar The question is whether the sales were made under the supervision of the pharmacist. How does that translate into an offer and acceptance issue? The pharmacist can stop you taking these medicines, at the till. If the contract isn t concluded before you get to the till, then the pharmacist always has the option to say you can t take the drugs. Whether the pharmacist has supervision depends on when the sale takes place. Somervell LJ reached the conclusion that the contract is not concluded when you take the goods off the shelves. The offer is when you put your goods on the counter to make the purchase. I agree with what the Lord Chief Justice has said, and with the reasons which he has given for his conclusion, that in the case of an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed. There is a commercial argument: if people have to decide what they want when they put it into their basket, then people wouldn t want to go to the shop. Also, if the price is misstated the shop is not bound to sell at that price. This was a unanimous decision, Birkett LJ and Romer LJ agreed with Somervell LJ. The mere fact that a customer picks up a bottle of medicine from the shelves in this case does not amount to an acceptance of an offer to sell. It is an offer by the customer to buy and there is no sale effected until the buyer s offer to buy is accepted by the acceptance of the price. The offer, the acceptance of the price, and therefore the sale take place under the supervision of the pharmacist. One issue raised by academics is the following. Fisher and Boots are not contract cases, they are criminal prosecutions. There is a question of the private lawyer: how reliable are these cases really given that they are decided against the background of criminal liability? The criminal lawyers ask: should we as criminal lawyers be borrowing from what the private lawyers say? Are these tenable positions? No. The idea that we should have different contracts for different things is stupid. This is not conducive to principle of certainty. 12
How should we classify advertisements? Are they offers or mere invitations to treat? The general position adopted by the courts is that an advertisement is nothing more than an invitation to treat. The leading English case dealing with advertisements is Partridge v Crittenden. In this case the defendant inserted an advertisement into a periodical said Ramble Finch, Cocks and Hens, 25 shillings. Advertisement appeared in the classified section of the magazine and at no point used the words offer for sale. The defendant was charged with offering for sale live, wild animals, contrary to the protection of birds act. His criminal liability depended on whether you could say he was offering this birds for sale. Was the newspaper advertisement an offer? Lord Parker said an advertisement in a newspaper is an invitation to treat and nothing more. When we say the display of goods are invitations to treat, that is the general rule/our starting point. That is only our starting point or presumption. It is quite possible that in any other case, the words of an advertisement may displace that prima facie presumption. It is possible to phrase your advertisement in such a way that it constitutes an offer. An example is the case of Lefkowitz. Lefkowitz v Great Minneapolis Surplus Store Inc 251 Minn 188; 86 NW 2d 689 (1957) The defendant published two newspaper advertisements, on April 6 and April 13 respectively. The plaintiff (a male) visited the sales after seeing each advertisement. The defendant refused to sell the items to the plaintiff on both occasions. On the first occasion, the defendant said there he had a house rule that he would only sell the items to women. On the second occasion, the plaintiff knew of that house rule (which slightly complicates things). There are two relevant items: the fur coats in the first advertisement and the stole in the second advertisement. The trial judge found in relation to the coat there was no contract, but in relation to the stole, there was a contract. The price is definite in both advertisements, but the value isn t. The fur coats in the first advertisement are stated as worth to $100, but could be anything less than that. The value of the stole is far more definite in the second advertisement: worth $139.50. The trial judge found for the plaintiff and the plaintiff was awarded $138.50 in damages (stated value of article advertised on April 13 less the $1 quoted purchase price = contract law protecting the plaintiff s profit). The trial judge was influenced by the certainty/speculativeness of the value of the item. But the value of the item is totally irrelevant. It is only the price that determines the contract. The judge had made a mistake here in deciding whether or not there is a contract. The judge s reasoning is faulty in respect to the first advertisement. There is an appeal, which only appeals to relate to the stole from the second advertisement. The issue is whether the advertisement second advertisement constituted an offer, and if so, whether the plaintiff s conduct constituted an acceptance. The defendant argues that the advertisement is an invitation to treat and he can modify or revoke prices or terms at any time. If the advertisement constitutes an offer, when the plaintiff turns up the deal is complete. If the advertisement constitutes an invitation to treat, when the plaintiff turns up he is only making an offer, so the seller has to accept that offer. Murphy J clears up a confusion that is created by the decision of Craft v Elder & Johnston Co. He says this case seems to confuse the concept of a unilateral offer with the concept of a unilateral contract. All offers must be unilateral a false distinction the only question is whether there is an offer here or not? He finds that, contrary to the decision in Partridge v Crittenden, this advertisement constitutes an offer because of the language used. The test laid down is as follows: if the language clear, definite and explicit, and leaves nothing open for negotiation, then there is an offer. Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances : this statement here is almost the critical test you have to apply to all cases. The core idea. 13
The judge gets in right in present case: the clear language or wording used in the advertisement indicates an offer. But do the surrounding circumstances suggest that there wasn t a contract? Yes, the defendant s house rules. The plaintiff knew of the house rule because he had been before and been informed of them. There is a strong argument that the advertisement is impliedly limited by the house rules the plaintiff is aware of. But the judge does not accept this argument, and dismisses the appeal. We may not want to follow Lefkowitz at least in terms of the outcome. It has no binding authority here, although maybe persuasive. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 (CA) Lefkowitz an example of case which decides an advertisement does constitute an offer as opposed to a mere invitation to treat. Arguably the same thing happens in the Carlill case. The defendant, the Carbolic Smoke Ball Company, posted an advertisement in a number of newsletters. The advertisement stated that those who used the smoke ball 3 times a day for 2 weeks and contracted influenza could claim increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printer directions supplied with each ball. The plaintiff, Mrs Carlill, bought a ball, used it for that period and contracted influenza, but was not paid a reward. The court of first instance held she was entitled to receive the reward. Issue: whether the advertisement constituted an offer that Mrs Carlill can accept by performing the condition, or is it simply an invitation to treat? Lindley LJ disposed of two issues quickly: I refer to them simply for the purpose of dismissing them. i. Argument that this was an insurance policy, only effective if they take a particular form. If this was an insurance policy, it is ineffective because it doesn t take that form. ii. Argument that it was a bet. A bet is not legally binding. If this constitutes nothing more than a bet, then it is an illegal contract and unenforceable. He took each of the company s arguments and systematically responds to them. 1. First argument was that the advertisement was a mere puff, a hyperbole/statement that puffs up the product but is not intended to have any legal effect. Lindley LJ rejected this argument. The advertisement was not a mere puff because the words are clear: here is a distinct promise expressed in language which is perfectly unmistakable. He said it was clearly meant to be a serious statement. The fact that the Carbolic company has actually deposited money with the bank indicates its seriousness. 2. Second argument was that if there was a contract, it was not binding because the offer was not made to anyone in particular, i.e. something can only be an offer if you are directing your contractual offer to a specified person. Lindley LJ also rejected this argument. He is here introducing the idea of an offer to the world, as opposed to a contract to the world. An offer to the world is an offer to anybody who satisfies the conditions in the advertisement. He is effectively rejecting the notion that an offer has to target a particular person. He analogises this case to the rewards cases. An offer to the world of offer of a unilateral contract (promise going one way, a promise in return for an act Denning LJ in 14
Ward v Byham). There is a concept an offer to the world, and whichever person chooses to fulfil the conditions of that offer, is the person you contract with. 3. Third argument was that acceptance of the offer should have be notified. Lindley dismisses this. The first two arguments were directed to the question of whether there is an offer. This argument changes tact, raising an argument that even if there is an offer, there is no relevant acceptance of the offer. The general rule is that acceptance is only effective if communicated: Felthouse v Bindley is authority for the proposition that silence does not constitute acceptance. Lindley accepts this general rule, but says here when you are dealing with a unilateral contract of this nature communication of acceptance is not necessary:. All you have to do is perform the condition and then claim the money. You do not have to notify to perform the condition and then claim the money. This argument fails also because it ignores the language which suggests there was no contemplation of notification of acceptance. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from the notice of the performance. 4. Fourth argument was that the advertisement was so vague that it could not be construed as a promise. In other words, essentially what is being promised is so hopelessly vague that a court should simply refuse to enforce it. This argument attacks certainty. Lindley LJ rejects this He effectively implies a condition into the offer when the parties contract, they contract on certain implied terms the implied term is that you are protected for a certain period of time after you use the smoke ball (similar to the implied condition in Lefkowitz). Another meaning, and the one which I rather prefer, is that the award is offered to any person who contracts the epidemic or other disease within a reasonable time after having used the smoke ball. Bowen LJ for the most part agrees with Lindley LJ. He commences by applying the objective principle: whether something is an offer or an invitation to treat is to be objectively assessed. He uses the reasonable member of the public test, because that is who is going to be looking into the advertisement, and what they are going to make of it. It seems to me than in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it? On what points does Bowen agree or disagree with Lindley? He agrees with Lindley s notion of an offer to the world and the fact that that offer is accepted by performing the conditions. Performance of the condition is a sufficient acceptance without notification. An offer subject to acceptance by performance. He also agrees with Lindley in relation to whether or not there should be communication of acceptance. Acceptance is effective without prior communication. But do you think there is a difference in emphasis between how Lindley and Bowen deal with the acceptance point? It looks as though Lindley is saying there is a legal exception to the general rule as soon as you classify something as an unilateral contract it is the exception. Bowen says the general rule is communication but if on the facts of the case communication is not required then the communication is displaced. One is a legal exception, one is effectively a factual rebuttal of the general rule. Bowen disagrees with Lindley as to the certainty point. Like Lindley he thinks contract is certain but Lindley implied that you are protected for a reasonable period of time after using the smoke ball. Bowen s stance is that you are protected as long as you use the smoke ball, provided you have used it for two weeks already. Two passages highlight this disagreement with Lindley. 15