Table of Content - Commercial Law Year End Examination Notes Chapter 4: Contract: Offer & Acceptance... 2 Chapter 5: Intention & Consideration... 7 Chapter 6: Express Terms of the Contract... 12 Chapter 7: Implied Terms of Contracts... 19 Chapter 8: Remedies in Contract Cases... 22 Chapter 9: Consumers Rights and the Supply of Goods and Services ACL... 28 Chapter 11: Partnerships... 33 Chapter 12: Introduction to Company Law... 41 Chapter 13: Duties of Company Directors and Other Offices... 46 Chapter 14: Introduction to Trusts... 52 1
Chapter 4: Contract: Offer & Acceptance To determine if a contract exists: Step 1: Has an offer been made? [ Offer or Invitation to treat ] Step 2: Has the offer been accepted? [ Only valid when it is properly communicated ] Step 3: Did the parties intend to make a contract? [ Intended to be legally bound ] Step 4: Was consideration provided? [ Both sides must present something of value ] You ve got a contract J Note: A contract can be written or oral. No requirements for it to be in writing! 3 Things to consider: 1.) Offer or merely indication of a present intention? Harris v Nickerson pg165 2.) Offer or invitation to treat? Partridge v Crittenden pg167 3.) Offer or conduct that is merely part of negotiations? Harvey v Facey pg164 Displaying goods with price tag or displayed is an INVITATION TO TREAT not offer Fisher v Bell (1960) pg168 and Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953) pg168 Catalogues are usually is an INVITATION TO TREAT, not an offer Grainger & Sons v Gough (1896) pg169 Advertisements can be offers Carlill v Carbolic Smoke Ball Co (1893) Auctions- Auctioneer calling for bids, bidder makes the offer. Tenderers are the offer makers, not the person calling for tenders Spencer v Harding (1870) pg172 Hughes Aircraft Systems International v Airservices Australia (1997) pg172 Standing offers Offers always standing, turns to contracts only when order is placed Colonial Ammunition Co v Reid (1900) pg173 The fate of the offer Offer à Offeror may withdraw the offer Offeror may accept the offer = agreement Offeror may reject the offer Offer may lapse due to passing of time Offer may lapse due to death of offer/offeree Offer may lapse due to the failure of a conditional precedent 2
Withdrawing the offer - An offer cannot be revoked after acceptance, otherwise breach of contract. - An offer can be revoked before acceptance if the offeror has promise not to revoke it. (This rule only applies when the offeree give no option to offeror to keep the offer open.) - Revocation must be communicated to the offeree, otherwise it is ineffective - The communication of revocation does not have to be made by the offeror personally - Special problems exist with unilateral offers - Certain offers called options may not be revoked Can an offer be revoked after acceptance? A contract is formed when an offer is accepted (provided intention and consideration are satisfied). The offer cannot be revoked once accepted. Any refusal to carry out the terms of the offer would be a breach of contract. Can an offer revoked before acceptance? An offeror may revoke an offer at any time prior to the offer being accepted even if the offeror has promised not to revoke it. Routledge v Grant P177 (Grant offered to buy Routledge s house, G kept the offer open for 6 weeks and withdrew it before expiration. Court held that G was entitled to revoke the offer at any time before acceptance). Is it necessary to tell offeree about the revocation? An offer is not withdrawn until the revocation has actually been communicated to the offeree. Byrne & Co v Van Tienhoven & Co P177 (Revocation is too slow therefore acceptance is valid, revocation is not effective until it is received by the offeree.) Who must tell the offeree that the offer has been revoked? Revocation of the offer must be communicated to the offeree BUT revocation does not have to be communicated to offeree by offeror in person as it could be learnt by offeree in some reasonable reliable manner. Dickinson v Dodds (Communication for revoking an offer could be made by third party to offeree.) Is it possible to revoke a unilateral offer? Normally unilateral offer could not be revoked until the offeree has had a reasonable opportunity to complete his/her action. If the offer involves a unilateral promise and the offeree has acted on the promise, the offeror will normally be prevented from withdrawing the offer until the offeree has had a reasonable opportunity to complete. Carlill v Carbolic Smoke Ball Co (CSB would not have been permitted to revoke the offer prior to Carlill completing the course of medication in accordance with the advertisement.) 3
Options (Offers that cannot be revoked)- An offer which offeree has given an option to offeror to keep it open, cannot be revoked before acceptance. An option exists where the offeree has given something of value to keep the off open. Goldsborough Mort & Co Ltd v Quinn P179 (G has given 5 shillings as an option to Q to keep the offer open, Quinn could not revoke the offer before G accept it, court ordered specific performance of the contract due to the sale of land.) Rejecting an offer - An offer may be rejected expressly or by implication. - Offeree s conduct may indicate rejection. - An offer is terminated on rejection cannot be later accepted. Offeree s conduct may indicate rejection The offeree can reject an offer by doing something that is inconsistent with an intention to accept Counter offer amounts to a rejection The offeree making a counter offer rejects an offer. Any material alteration of the terms of the offer will be a counter offer. Need to be careful when restating the original offer as part of the purported acceptance. Hyde v Wrench P180 (W offered to sell property for 1000, H countered to buy for 950, W did not accept and refused to transfer the property to H. Court held that W s original offer has been rejected by H s counteroffer, this counter offer has also been rejected by W. W has no obligation to sell the property.) Turner Kempson & Co Pty Ltd v Camm P181 (Turner offers to supply fruit, Camm s acceptance has added new terms which amounts to counter offer, Turner did not accept the counter offer. Turner won). Asking for clarification of terms of the offer is not a counter offer (Needs reasonable person test to determine if it is a request for clarification or a counter offer.) Stevenson Jacques Co v McLean Acceptance of offer - If an offer has not been withdrawn or rejected, it may be accepted - Only the offeree may accept the offer - Acceptance must be final and unqualified. (Sometimes offeree does not intend to be bound by the agreement, he/she is reserving right to change mind or terms, eg. subject to contract ) - Acceptance must be communicated to the offeror, unless one of the exceptions applies Only the offeree may accept Acceptance must be final and unqualified The offeree must intend to be bound by the agreement. However, if there is an arrangment made subject to contract is presumed not to be a contract 4
Masters v Cameron P183 (Masters signed memorandum of agreement subject to contract. Court held that subject to contract is normally presumed not to be a contract as it is normally not a final and unqualified acceptance. Thus, the deposit belongs to Master. Contrast to Masters v Cameron, Plastyne Products Pty Ltd v Gell Engineering Co Pty Ltd P209 (Buyer sent letter to seller, one term said that formal contract will be prepared, so clear intention to contract.) The problem of battle of forms (Two parties fire documents at one another containing contradictory terms.) Butler Machine Tool Co Ltd v Ex- Cell- O Corp (England) Ltd P184 (offer, counter offer, acceptance. The counter offer has been accepted when the seller return the acknowledgement slip, held that there is contract.) Reese Bros Plastics Ltd v Hamon-Sobelco (Australia) Pty Ltd P185 (Hamon offered, Reese accepted by replying in fax but gave some different confirmation from Hamon s original offer. Held that there was a contract when Hamon s offer had been accepted by fax, subsequent confirmation containing new terms was irrelevant.) Acceptance must be communicated to the offeror Silence does not amount to acceptance Felthouse v Bindley (1862) p186 ( Felthouse sent a ltter to his nephew offering to buy a particulat horse and if F did not hear from his nephew, he would consider the horse his for 30.15. The court held that the nephew s silence could not be regarded as acceptance in these circumstances) Communicating acceptance to a large company (Acceptance occurs when the relevant letter or other communication is opened in the ordinary course of business or would have been so opened if the ordinary course were followed. It is the recipient s responsibility to arrange for prompt and efficient distribution of messages within the office and the company generally) Communicating acceptance over the Internet (An electronic communication is taken to have been sent from the sender s place of business and to have been received at the addressee s place of business.) Situation where express communication is not necessary possible exception rules Where regular past dealings exist allowing the conclusion that a contract exists even without formal acceptance. Where the offeror s and the offeree s industry involve a custom that formal acceptance is not necessary. Acceptance maybe indicated by conduct rather than words. In the case of unilateral contracts, Carlill v carbolic Smoke Ball Co, it is not necessary for the offeree to advise the offeror of acceptance The postal rule. 5
Lapse of offer Due to the death of offeror or offeree The death of either the offeror or the offeree terminates an offer: Fong v Cilli (1968) The result would differ if an option was involved and the offer did not involve personal skill or service by deceased: Carter v Hyde Due to time If no time limited is mentioned, offer remains open for a reasonable time: Ramsgate Victoria Hotel Co Ltd v Montefiore If there is an offer to remain open/ return mail by the offeror, the offeree could not accept after the time given What constitutes a reasonable time will depend on the circumstances such as: 1) The method by which the offer has been made 2) The nature of the transaction 3) The terms of the contract as a whole 4) The actions of the parties between the making of the offer and the purported acceptance 5) Any evidence that the offeror has intimated an appropriate time frame Due to the failure of a condition precedent An offeror may make an offer conditional on the happening of a particular event. The condition is not satisfied, the offer lapses and cannot be accepted. The agreement must be certain The courts require certainly as to the parties, the subject matter of the contract and the price otherwise it is void. Whitlock v Brew P191 (Sale of land, clause 5 was uncertain, so agreement fail for uncertainty.) Is an agreement to agree binding? Usually an agreement to agree is not binding b/c of uncertainty, unless parties provided a mechanism for fixing price. Hawthorn Football Club v Harding 192 Is an agreement to negotiate binding? An agreement to negotaite in good faith was unenforceable. Is an agreement made subject to contract binding? Presumed not to be binding, Master v Cameron But subject to contract may be displaced by evidence suggesting that the parties did intend to be bound. Sale of land is not easy to displace the presumption Other conditional agreements Subject to finance or subject to buyer s approvals are regarded as condition precedent and there is a contract. However the parties have to act honestly and reasonably and thus, the contract will not proceed further 6
Chapter 5: Intention & Consideration Intention to contract For an agreement to be legally enforceable as a contract, one of the conditions that must be satisfied at the formative stage is that the parties intended to create legal relations. Intention can be express (words, writing, or conduct) or implied but if it is not present, there can be no contract. The parties intend their agreement to be binding in the sense of being enforceable by a court. Step 1 Social/Domestic agreement or Commercial agreement? Step 2 Apply the relevant presumption. Step 3 Any evidence for rebutting? Social/Domestic agreement Presumption that parties did not intend to be legally bound by the agreement. Can be rebutted by strong evidence, reasonable person test. (Whether a reasonable person would have concluded that the arrangement was contractual.) Ones made between friends, aquaintances, family members or relatives Balfour v Balfour P203 (Mr Balfour promised to pay his wife 30 per month. The couple later separated. The court held that an agreement existed but not intended to be legally binding). Todd v Nicol P204 (Nicol invited the Todds (sister in law) and her family to come over to South Australia to stay with her and promised them free accommodation in her house for the rest of their lives or until their niece got married and alter her that the house would become theirs after she s dead. Todd quit her job, sold her furniture and moved with her daughter to Nicol. However, N asked T to leave her house after an argument developed. (The could held that the agreement amount to contract, b/c of the surrounding circumstances, and the effect of the agreement, and the manner in the parties conducted.) Commercial agreement (General rule) Presumption that parties intended to be legally bound by the agreement. Roufos v Brewster P199 (B Owned a truch which was in need of repair and Roufus owned a semi trailer. B asked R to transport the truck to Adelaide and in return, R is allowed to fire a driver to drive the truch with R s goods. R agreed but in the return journey, the truck was damaged due to the negligence of the driver. Held that they had a binding commercial agreement, and there is a contract, although they are family.) (Rebutting the presumption) Can be rebutted by clear words or stating the agreement is not legally enforceable, but it is difficult as any party not wishing a commercial agreement to be legally enforceable should state this clearly. Rose and Frank Co v J R Crompton & Bros Ltd P204 (Court held that the agreement is not intended to create legal relations as the agreement has clearly stated that, therefore no contract.) Edwards v Skyways Ltd P200 ( ex gratia (payment made without the giver recognising any liability or legal obligation) was inadequate to displace the presumption that the parties intended their agreement to be legally binding, a contract exists.) 7