1 Contents The Objective Principle of a Promise... 2 Intention to Create Legal Relations... 4 Offer and Acceptance... 5 Offer vs. Invitation to Treat... 5 Termination/Lapse of Offer... 6 Acceptance of an Offer... 7 Certainty (Finality and Completeness)... 9 Consideration... 11 Promissory Estoppel... 14 Privity... 16 Agreements in Writing... 19 Damages... 24 Promise and Representation... 32 Promise and Condition (Performance and Breach)... 34 Frustration and Impossibility... 39 Promises in Restraint of Trade (Unenforceable Promises)... 42 Mistake... 44 Duress and Undue Influence... 47
2 What is needed for the valid creation of a contract? 1. Intention to create legal relations, 2. Offer and acceptance, 3. Certainty 4. Consideration Limiting Factors: 5. Promissory Estoppel 6. Privity Vitiating Factors: Remedies: Other: 7. Misrepresentation 8. Mistake 9. Duress and Undue Influence 10. Frustration 11. Unenforceable Promises 12. Damages and Specific Performance 13. Interpretation 14. Breach of Condition
3 The Objective Principle of a Promise 1. It is essential to the creation of a contract that both people agree to the same terms in the same sense. If the parties are not ad idem, there is no contract. Meeting of minds. a. Blackburn J in Smith v Hughes (1871) QB UK. And also in Raffles v Wichelhaus 1864 where a mutual mistake where each party thought of different ships called Peerless. 2. A person s promise is interpreted how a reasonable person would understand it (ie. Words are given their ordinary meaning). Agreements are entered into objectively, parties actual subjective intention does not matter. Smith v Hughes (1871). a. Expressed as "unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other". 3. There is no obligation for one party to correct the misheld belief of the other. Buyer beware rules. Except where there was: a. An implied warranty, seller acted fraudulently, or seller had a duty to reveal facts to the buyer. (In the case of Smith v Hughes no obligation to, where sample sent, correct buyers belief in old oats ). 4. But, where the misheld belief would have been the belief of a reasonable person, the contract is void, as demonstrated in Denny v Hancock 1870 LR UK: a. H won auction believing land extended to fence. D sues H, judge rules in H s favor because a reasonable person (even an expert surveyor!) would have understood offer in the same way as H. b. Where a map has been provided, the objective offer is land offered as per map. Tamplin v James 1879 CA UK where buyer thought he was to receive parcel A & B, but really only purchased parcel A. 5. Can find an implied promise to pay where a reasonable person would interpret the words as an implied promise to pay. Shown in Upton RDC v Powell [1942] CA UK where P called fire brigade to his farm and they charged him as they were out of his zone.
4 Intention to Create Legal Relations 1. For a contract to exist, there must be an intention to create legal relations. This intention is to be ascertained objectively on the facts (words and actions). Fleming v Beevers [1994] CA. 2. There is a historical/general presumption in domestic settings or between friends in a social context that parties do not intend to be legally bound, but can rebutted on the facts. See Balfour v Balfour [1919] CA UK (Husband/Wife allowance.) a. "All I can say is that small Courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in legal obligation. Each house is a domain into which the King's writ does not seek to run." i. Note the Relationship Property s Act 1976 where upon separation rules of act apply, except where a contracting out agreement had been written up with lawyers. b. Despite this presumption, Fleming v Beevers [1994] CA puts more weight on facts rather than presumption. Appears to lower to the bar to overcome presumption. c. But still unlikely to uphold social agreements in uncertain terms Biddle v Bentley [1967] d. So did parties objectively intend to be legally bound? e. Welch v Jess [1976] DC found contract where agree to share expenses/prizes while fishing. f. Jones v Padavatton [1968] CA UK: (Mother/Daughter allowance/home). i. Facts significant: Advantages given up by daughter, effort put in by mother, involvement of solicitor confirming agreement. No contract in this case. 3. There is a general presumption in commercial/business agreements that parties intend to be legally bound, but can be rebutted on the facts. a. An exception to this rule is where there is a clause where parties expressly declare agreement is not to be legally binding, see Rose and Frank Co v Crompton 1923 UK CA i. Honour bound clause excluding agreement from legal jurisdiction. b. It is possible for only some clauses in an agreement to be binding if this is the party s intention. Hanoman v Mayor of London Borough of Southwark 2009 UK c. Adverts generally seen as an invitation to treat. Can become offers by their wording. Carlill i. Note Fair Trading Act 1986 about misleading advertising. d. A clause that states subject to preparation and approval of a formal contract prevents the document from being held as final enforceable agreement due to intention to not be bound (and lack of offer and acceptance). Winn v Bull 1877 e. There is a general presumption that in large scale complex commercial transactions (or of a type of transaction normally recorded in a formal written document), parties do not intend to be bound until a final agreement is executed/signed. Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd 1981 CA i. Large scale negotiations with solicitors regarding emulsion producing gun.
5 Offer and Acceptance 1. Traditionally, contract is made when one party s offer is accepted by the counterparty. An offer is a promise intended to be binding if accepted, acceptance must be a mirror image of the offer. 2. Offer: A sign, statement or action with clear and specific terms which shows intention to be legally bound if accepted. Boulder Consolidated v Tangare [1980] 3. Acceptance: An acceptance is a sign, statement or action which shows intention to be legally bound by the terms of the offer. Must be complete and unqualified. Shaw v Jones (1924) NZ Offer vs. Invitation to Treat 4. An invitation to treat is simply an invitation to enter negotiations. Offer has complete information. 5. An invitation to treat is distinguishable from an offer as an offer is made is presence of an (objectively determined) willingness to be bound upon acceptance. J McMullin in Boulder Consolidated v Tangaer [1980] NZ 6. There cannot be acceptance without an offer. J McMullin in Boulder Consolidated v Tangaer [1980] NZ a. T bought a section. T and B agree to substitute with a different section. T asks to see more sections. T asks for section 138, 138 had already been sold, T argued a contract had been made to sell him 138. 7. An offer inviting tenders does not amount to an offer capable of acceptance, but rather amounts to an invitation to treat. Spencer v Harding (1870) a. Absence of language such as we undertake to sell to the highest bidder rebutted presumption that defendants intended to be bound. - Willes J (Spencer v Harding) 8. Goods on display are not an offer, they are an invitation to treat; the customer makes an offer when they take goods to the register. The cashier is under the shopkeeper s authority to make acceptance, a contract is not formed until the cashier accepts the purchase. Lord Goddard CJ in Pharmaceutical Society v Boots Cash Chemists (Southern) Ltd [1953] UK CA: a. To find that sale occurs at point of removing goods from shelf would have strange consequences as customers couldn t return and shopkeepers couldn t prevent. 9. An advert in a magazine is not an offer, it s an invitation to treat. Partridge v Crittendend [1968] UK. a. Lord Parker CJ points out practically, if it s an offer, then person would be contractually obliged to supply unlimited birds. So makes no sense. b. In this case, P was charged by C by RSPCA for illegally offering a bird for sale contrary to Protection of Birds Act 1954. But he did not offer, he accepted. c. Unless there is a clear intention to be bound on acceptance. Carlill v Carbolic Smoke Company UK has four key takeaways: i. A unilateral contract is where only one side is bound and acceptance is by the performance of a requested act. No need to communicate intent to accept. 1. CSC promised $100 to anyone who contracts flue after using smoke ball 3 times daily for 2 weeks. They are bound to provide 100 if requested act performed. ii. Whether or not an offer has been made ( just an advert/sales puff ) has to be looked at objectively through the eyes of a reasonable person it is aimed at. 1. CSC had shown sincerity to reasonable person by putting deposit in bank. iii. The offeror is the master of the offer and describe their method of acceptance. iv. An offer can be made to the world and only those who accept will be contracting parties.
6 1. Because contract is only formed with those acting on the terms they decide upon as master of the offer. Rejection and Counter Offer Termination/Lapse of Offer 10. A counter offer is a rejection of the original offer. So the original offer no longer exists, and therefore cannot be accepted. Hyde v Wrench (1840) UK a. W offered to sell farm for $1000, H offered $950 and W refused, H then agreed to pay $1000 but offer no longer existed so no contract. 11. The law requires a final willingness to contract (offer) and an acceptance. Parties cannot be bound when still negotiating conditions. Cross v Davidson (1899) NZ a. C and D communicated for sale of steamer. Negotiating date of postage constituted a counter offer, so not bound. b. A request for further information is not an acceptance. Stevenson Jacques v McClean 12. A counter offer may appear to be an acceptance, but it cannot truly be acceptance if it does not reflect the offer absolutely and without qualification. Shaw v Jones (1924) NZ 13. An inquiry about an offer is not a counter offer. Powierza v Daley 1985 NZCA 14. In the battle of the forms, the last shot wins. Butler Machine Tool v Ex-cell-o Corp [1979] UK a. B sent an order form, E returned their own order form with different conditions (a new offer extinguishing B s offer), B signed (acceptance). Revocation of Offer by Lapse of Time or Change in Circumstances 15. An offer automatically lapses only if there is a fundamental change of circumstances before it is accepted. a. Whether there has been a fundamental change or not can be determined by objectively assessing (by inference) if the offeror intended the offer to lapse upon the change in circumstance. Dystart Timbers Ltd v Nielson [2009] NZ Majority. i. Leave application granted so then D accepted offer, N argued that offer lapsed upon grant of leave as condition upon which offer was based no longer possible. 16. The reasonable time after which an offer lapses can be determined on the facts by considering conduct and language of the two parties, the nature of the goods, and other reasonable circumstances. Barrick v Clark [1951] Canada SC a. Estey J states that reasonable time for goods that fluctuate in price (stocks) or perishable goods would be short. Whereas in the current case, an offer for farmland, the reasonable time would be longer. Termination of Offer by Communication of Revocation of Offer 17. Offer can be revoked at any time prior to acceptance provided it comes from reliable source and is unequivocally conveyed. King v Homer (1913) NZ a. Promise to keep offer open is not binding as not supported by consideration. 18. Contrary to the postal acceptance rule, revocation of an offer must be communicated to the offeree so that the offeree has knowledge of the revocation, mere posting of a revocation is not sufficient communication. Byrne v Van Tienhoven [1880] UK