1 TOPIC 1: AGREEMENT An agreement is an understanding between two parties that one of them will do something, or will promise to do, in return for the other doing something, or promising to do so Requires a consensus- meeting of the minds ad idem This consensus must involve at least one promise. The contract must be entered into voluntarily Whether an agreement is reached is determined objectively not subjectively. Where a reasonable person would assume they are in agreement (Lucy v Zehmer (1954) 84 SE 2d 516). Agreement is only concerned with the entering into a contract and its terms, not with the desirability or what motivated the agreement Can exist even if one person feels forced due to their economic or personal circumstances, or not happy about the terms. Law does not prevent superior bargaining power from being used to drive the bargain that is in the party s favour (ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51) However: The general or unwritten law will render a contract voidable if weaker party was induced into an agreement through illegitimate pressure. The Australian Consumer Law creates consumer guarantees in favour of consumers that cannot be excluded by an agreement between parties. Smith v Hughes [1871] LR 6 QB 597 Smith offered to sell oats to Hughes by showing him a sample of what he was selling. Hughes believing he was being shown old oats agreed to purchase them. o Hughes later realised they were new oats and refused to pay o Smith, knowing they were new oats, refused to take them back and sued for the contract price. Held: CONTRACT Both parties were ad idem to the sale and purchase of the oats. Hughes believed the oats to be old, however, omitted to make the age of the oats a condition of the contract. Justice Blackburn - objective testing of a reasonable man in which a reasonable man would believe that he was assenting to the terms proposed by the other party, and upon that belief the other party enters a contract with him, even if he had not intended to agree to the other party s terms
2 Agreements reached without offer and acceptance Clarke v Dunraven [1897] AC 59 Every competitor had a contract with every other competitor to compete according to the Yacht Racing Association Rules Clarke had a contract with Dunraven on those terms Brambles Holdings Ltd v Bathurst C ty Council (2001) 53 NSWLR 153 (p79-82) A rejected offer could remain operative if it were repeated, or otherwise revived, or for other reasons be considered as remaining on foot, available for acceptance, or for adoption as the basis of mutual assent manifested by conduct. Held: brambles, by charging higher fees, had accepted the offer contained in the Councils September letter. Springing contracts: Contracts where there is not clear point at which an agreement was concluded but it is nevertheless clear that the parties reached an agreement. Test: does the contract reveal an agreement that manifests a mutual assent which bespeaks to be legally binding to the essential elements of a contract. Bilateral and unilateral contracts Whether a contract is bilateral or unilateral depends on the intentions of the parties. Bilateral: Each party makes a promise to the other Most consumer and business transactions E.g. I will pay you $1000 to paint my fence. A response of yes would create a contract in which both parties are bound to a promise. Unilateral: Only one party makes a promise. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 o promise made by company, when Mrs Carlill responded she did not make a promise in return. E.g. I will pay you $1000 to find my lost dog. A response of yes would not be taken as a promise to find the dog. But the owner as promised the money and if the dog is found by that person, they are bound to pay. Used when the offeror wishes to induce the offeree to behave in a certain way, but knows that the vagaries of the situation are such that the offeree is unlikely to respond by promising to do what the offeror seeks. Errington v Errington [1952] 1 All ER 149 Father bought house for son and daughter-in-law, financed through mortgage on his property. He promised them that if they made the payments due under this mortgage the house would be theirs upon his death. They did this and occupied the house. 9 years
3 later father died leaving house to widow. The couple separate, the daughter-in-law remained in the house and paid the instalments, the widow sued for possession. Held: If the couple failed to pay the installments the father would not be bound to transfer the house. It would cease to bind the father if they left it incomplete and unperformed, which they had not done. If this was the position before the father s death, it shall remain after his death. If the daughter-in-law continues to pay the instalments the property shall be transferred to them as soon as the mortgage is paid off. If she does not, the mortgage comes out of the father s estate. Mobil oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 Mobile presented that a dealer who performed at a prescribed level for 6 years would be given a franchise for a further 9 years at no cost to the dealer. Mobil later discontinued this scheme. Dealers claimed - breach of contract, misleading conduct, constituted an estoppel. Held: In a unilateral agreement the act of acceptance is also the consideration and act of performance. In this case Mobil s revocation of its scheme made it impossible for the dealers to complete the act of acceptance. The trial judge held that once an offer was made, requiring performance as the act of acceptance, the offeror could not revoke the offer once the offeree has embarked upon acceptance. The Full Court disagreed. Although in some cases there may be an implied ancillary unilateral contract in which the offeror promises not to revoke once the offeree commences performance, that is not the same as saying that the original offer cannot be revoked - and there is no universal proposition that an offeror is not at liberty to revoke the offer once the offeree commences or embarks upon performance of the sought act of acceptance ' Offer: Who can make an offer or be made an offer? Particular person, group or the whole world Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 Company manufactured and sold a medical preparation called The Carbolic Smoke Ball which was designed to prevent users contracting a cold or influenza. To promote product the company released an advertisement paying 100 euro to anyone who contracted a cold or influenza or the like after using the smoke ball as specified. Mrs Carlill bought one of the balls and used it as directed, however, contracted influenza and claimed the reward. Held: CONTRACT
4 Not a contract made with the whole world, but an offer made to the whole world. The contract lies with the small portion of the public who come forward and perform the condition on the faith of the advertisement= a contract the moment a person fulfils the condition. Invitations to deal A communication to merely negotiate - where a response to an offer allows the party issuing the invitation to accept or reject the response. Displaying goods Usually regarded as an invitation to deal. Contract occurs when the customer having indicated the items wanting to be purchased, the shop keeper, or someone on their behalf, accepts the offer, and a sale occurs. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 Boots operated a self-service store that contained a pharmacy department. When the purchase of a drug was involved, the transaction at the cashier s desk was supervised by the pharmacists in control of the pharmacy department. The Pharmaceutical Society alleged that Boots infringed the Pharmacy and Poisons Act 1933 that required the sale of certain drugs to be supervised by a registered pharmacist. Held: Boots had not infringed Act 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 items wanted, the shopkeeper, or someone on his behalf, accepts the offer. Then the contract is completed. Advertisements Classified as invitations to deal, as responses can then only be offers made to the advertiser and can be rejected when supply is exhausted (Partridge v Crittenden [1968] 1 WLR 1204). However, not always the case- Carbolic smoke ball- contract when bought ball. Crucial to examine the facts of individual cases and be wary of generalisations. Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957) Store published an advertisement in newspaper which read: Saturday, 9am sharp, 3 brand new fur coats worth $100.00. First served $1 each. Plaintiff was the first customer but was refused. Held: CONTRACT
5 Where the offer is clear, definite and explicit, and leaves nothing open to negotiation, it constitutes an offer, acceptance by which will complete the contract. Depends on the legal intention of the parties and surrounding circumstances. Bait advertising The practice of advertising certain goods at extremely low prices to attract customers to the store with the intention of selling them other goods, at normal prices. Invitation to deal allows them to avoid exposing themselves to the risk of having to supply any, or many, items at the advertised price. Now prohibited by Australian Consumer Law The Australian Consumer Law s 35(1) A person must not, in trade or commerce, advertise goods or services for supply at a specified price if: there are reasonable grounds for believing that the person will not be able to offer for supply of those goods or services at the price for the period that is, and in the quantities that are reasonable. Requests for information or statements of possible terms Harvey v Facey [1893] AC 552 The plaintiffs asked the defendants at what price they would be prepared to sell certain land. The defendants replied with a figure, which the plaintiffs, treating it as an offer accepted. Held: NO CONTRACT The Privy Council held that the defendants reply was merely a statement of the minimum price at which they were willing to sell. Therefore the plaintiffs response could not amount to acceptance but an offer, which on the facts, the defendants had not accepted. Gibson v Manchester City Council [1979] 1 WLR 294 Letter from the municipal council, whose policy at the time was to sell council houses to tenants, and which read in part the corporation may be prepared to sell the house to you at the purchased price of. Held: NO CONTRACT Not to be an offer to sell but merely a statement of the terms upon which it might be willing to sell in due course. Termination of offers: Once this has happened, it can no longer be accepted.
6 Revocation: Withdrawal of the offer by the offeror. It must occur before the offer is accepted and must be communicated to the offeree - does not have to directly come from the offeror. An offer cannot be revoked if the offeror has granted the offeree an option covering it; e.g. not to revoke, made in exchange for consideration. Postal rule does not apply Offers made to the world - sufficient to publish a notice a notice of revocation that is as prominent as the notice making the original offer Dickson v Dodds (1876) 2 Ch D 463 10 June - Dodds offers to sell house to Dickson for $800 - offer open until 9am 12 June Dickinson decides to accept offer but does not yet inform Dodds 11 June - informed by a third party that Dodds has sold the property to another buyer. 12 June- Dickinson left a formal acceptance at Dodds residence and agent to Dodds personally before 9am. Dodds declined to transfer the house to Dickinson. Held: NO CONTRACT There was no consideration given for the undertaking or promise to keep the property unsold until 9am. Once that person receives notice, in some way, that the land has been sold to somebody else, a binding contract by the acceptance of the offer cannot occur. Byrne v Van Tienhoven (1880) LR 5 CPD 344 Letter dated 1 Oct, Van Tienhoven offered to sell goods to Bryne. 8 Oct - sent second letter revoking offer - letter received on 20 Oct. Meanwhile, 11 Oct, Byrne had telegraphed accepting the offer and had resold for profit Van Tienhoven refused to sell goods - Bryne sued to recover damages Held: CONTRACT The letter of revocation was inoperative, and a complete contracting binding the parties was entered into on the 11 oct, when the plaintiff accepted the offer, which they had no reason to suppose had been withdrawn. United Nations Convention on Contracts for the International Sale of Goods, 1980 It applies when the parties to a sale have their place of business in different countries (Article 1). Therefore, it does not apply to purely domestic transactionappears as a schedule to the Victorian Goods Act Article 16 o Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. However, an offer can be revoked: if it indicates, whether by stating a fixed time or otherwise, that is irrevocable; or
7 if it reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. Rejection or counter-offer: Rejection = no to the offer Counter-offer = communication indicating that the offer is acceptable in substance, but seeking to vary the terms in a meaningful way of the proposed offer. o Both terminate the offer and can longer be accepted. Counter-offer makes a new offer. o Counter-offer must be distinguished from a mere request for information or clarification, or requests to alter the terms of the offer. United Nations Convention on Contracts for the International Sale of Goods, 1980 Article 17 o An offer is terminated when a rejection reaches the offeror. Article 19 o A reply to an offer that purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. o An acceptance but contains additional or different terms that do not materially alter the terms of the offer constitutes an acceptance, unless, the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If no objection= contract to the modified terms. o Additional or different terms relating to the price, payment, quality, and quantity of the goods, place and time of delivery, extent of one party s liability to the other or the settlement of disputes are considered to alter the terms materially. Lapse of time: Death: Offers cannot be accepted after the time for acceptance has lapsed, unless the offeror agrees to waive the stipulation. Time may be specified by offeror If no time specified offer must be accepted within a reasonable time If the offeror intentionally avoids receiving an acceptance within the stipulated time acceptance communicated after that will still be effective. Generally - an offer will lapse with the death of the offeror and cannot be accepted thereafter. If the offeree does not know of the death, acceptance may still be possible: o Unless the contract specific performance by the offeror. It can be performed by the offeror s estate.
8 Death of an offeree terminates and offer, similarly to death of an offeror, depends on whether it was personal to the offeree, can be performed only by the offeree, not their estate, and would only benefit the offeree. Failure of condition The offer will lapse if the even does, or does not occur, respectively. United Nations Conventions on Contracts for the Sale of Goods, 1980 Article 20(1) o Acceptance occurs the moment a telegram or letter is handed in for dispatch or from the date shown on the letter. o A period of time fixed for acceptance by telephone, telex or other means of instantaneous forms of communication, begins to run from the moment it reaches the offeree. Article 21(1) o A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally informs the offeree or dispatches a notice to that effect. Acceptance: An affirmative response in response to an offer. Unequivocal statement by offeree agreeing to the offer (oral, written, conduct) If responding to the offer was at least one of the reasons for the offeree s action, it seems clear that acceptance would be found to have occurred even though it was not the offeree s principle motivation. Crown v Clarke (1927) 40 CLR 227 Crown offered a reward to information leading to an arrest and conviction of the murderers of two police officers. Clarke was arrested in connection with murders and gave wanted information. Clarke was released and claimed the reward - was refused. Held: NO CONRACT Information was given in circumstances that showed that he was not acting on or in pursuance of or reliance upon or in return for the consideration (reward). Not ad idem Given in exchange for the offer Use of the example: Go swimming in ocean for $100 o If they knew of the offer it would be presumed that their action performed was in response to it. If they did not know of the offer but swam in the ocean anyway, no contract formed. Who may accept an offer: Only a person to whom the offer was directed. Only a person who is responding to an offer
9 Boulton v Jones (1857) 2 H & N 564 Defendants order for goods, directed to a named trader, was, without the defendants knowledge, accepted and executed by the plaintiff to whom the trader had transferred his business. Defendant refused to pay. Held: NO CONTRACT Plaintiffs claim for price failed as no contract between the parties The defendants offer was not directed to the plaintiff and therefore the plaintiff could not accept. Acceptance by conduct: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Machon Paull, a firm of architects, was engaged to carry out certain work for Empirnall. After doing some work they submitted a written contract to Empirnall for signature and return- document never signed. However, Machon Paull continued to work for Empirnall and payments were made to them in accordance with the terms of the contract. Held: CONTRACT Empirnalls acceptance of the work when considered objectively, should be taken as an acceptance of the work on the terms and conditions offered by Machon. An acceptance taking on the benefit of an offer with knowledge of its terms and knowledge of the offeror s reliance on payment in return for the work. Australian Consumer Law The dispatch of goods being regarded as an offer to sell and their retention by the consumer as acceptance of that offer. To protect consumers against being lulled into a contract by their inactivity the following provision exists: o Section 41(1) o If a person, in trade or commerce, supplies unsolicited goods to another person, the other person: is not liable to make payments for the goods is not liable for loss of or damage to the goods, unless the loss or damage was done in a wilful and unlawful act during the recovery period. Correspondence between offer and acceptance: To amount to acceptance, the words or conduct of the offeree must, expressly or by implication, indicate assent to all terms of the offer. Important to consider the communications between the parties as a whole to determine when a contract is made and on whose terms. Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR 401 (p59-61)
10 Held: Better way is to look at all the documents passing between the parties and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points. battle of forms - there is a contract as soon as the last of the forms is sent and received without objection. The acknowledgement of June 5 1969 is the decisive document. Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd [1998] 4 VR 559 M submitted quote to PD for installing machinery. Quote expressed to be on attached terms. But nothing was attached. Subsequent fax stated quote to be on M s standard terms; still none sent. PD orally accepted the faxed quote. Subsequent discussions; M hen sent document setting out standard terms to PD. PD prepared amended purchase order contained only one of M s standard terms - & paid 25% of price Machinery manufactured & installed but exploded, causing damage to PD Issue: were M s standard terms part of the contract (if so, M avoided liability for damage suffered because those terms included an exclusion clause) Held: The contract comprised an offer constituted by the original offer by Maxitherm, and acceptance by Dunlop to that offer Maxitherm s standard terms were made terms if the contract because they formed part of the offer which Dunlop accepted. Communication of acceptance: Not be effective unless communicated. Communication must be by the offeree, or by a person they have authorised. Vienna Convention Article 18: o Silence or inactivity does not in itself amount to acceptance o Some exceptions re: prior dealings or trade usage Felthouse v Bindley (1862) 11 CB (NS) 869 Felthouse wrote to his nephew offering to buy the horse and saying if I hear not more about him, I consider the horse mine. Nephew did not reply, decided to accept this offer and told Bindley, an auctioneer, not to sell the horse. However, by mistake Bindley sold the horse to the third party. Felthouse sued under conversion - claiming at the time of the sell the horse was his property. Held: The nephew had not communicated to his uncle that the horse was his, thus, he was not bound to his uncle. No bargain to pass the horse to the uncle. Mode specified by the offeror:
11 The offeror can specify the mode in which acceptance is to occur and this may include dispensing with the need for actual communication. Exceptions to communication rule: Waiver Not necessary to communicate the offer Disadvantages only the offeror, relieves offeree from burden of communication Carbolic smoke ball - a person need not notify his acceptance to the offer before he performs the condition, but that it performs the condition notification it is dispensed with. Performance of a condition is sufficient notification. Silence Silence alone cannot be treated as assent - with other factors it may be considered and acceptance. Does not allow the offeror to impose upon the burden of rejecting an offer as the alternative to entering into the contract. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd After a reasonable period of time, silence amounts to a rejection of the offer. May be under duty to communicate their rejection of an offer, failure to do so may be regarded as acceptance. Where an offeree with a reasonable opportunity to reject the offer takes the benefit of them under circumstances that indicate they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms. Considered objectively - the taking of the benefit of an offer with knowledge of its terms and knowledge of the offeror s reliance on payment being made in return for his work. Estoppel Arises when conduct of the offeror prevents that party from asserting that communication of acceptance has occurred. E.g. ink fails on teleprinter at the receiving end, but the clerk does not ask for the message to be repeated: so that the man who sent the acceptance reasonably believes that the acceptance has been received = contract. Postal acceptance rule Acceptance deemed to be effective at the time and place a letter of acceptance is posted, or a telegram is handed in for transmission, rather than when and where it is received. Will still deemed to have been communicated even though it has been lost in the post system and never delivered, so long as it is not the offeree s fault. Will only apply if the terms and circumstances of the offer indicate that the offeror contemplated that acceptance could be by post- not applicable is a contrary
12 stipulation, unreasonable to use the post (strike) or if offer was made using a quicker form of communication (possibly). Does not apply to instantaneous forms of communication Does not apply to revocation Bressan v Squires [1974] 2 NSWLR 460 Squires gave Bressan an option to purchase land. Clause 1- acceptance may be exercised by notice in writing addressed to me at any time on or before 20 Dec 1972. 18 Dec Bressan posted a notice to squires exercising this option- received on the 21 st. Squires denied that it had been exercised properly and refused to sell land. Held: The parties must have contemplated that the option might have been exercised through post. Accordingly, the exception applies and there is a concluded contract, unless there is some other holding that this result does not follow. In this case, there was further language used in the option that suggested actual notice of acceptance was required before acceptance would occur. Brinkibon Ltd v Stahag Stahl und Stahl-Warenhandelsgesellschaft mbh [1983] 2 AC 34 Once acceptance sent to telex machine, it should be regarded as delivered because of the offeror s responsibility to arrange for prompt handling of messages. An offeree can generally tell if a message has not been received - offeree should have the responsibility of ensuring that the message is received. Commercial expediency - not applicable in instant forms of communication. Lord Wilberforce determined that when an instant form of communication that goes directly to the offeror s business, acceptance occurs when it reaches the place of business not when it gets to the person it is addressed to. His Lord also makes note that messages may be sent at inappropriate times with the intention or upon the assumption that they will be read at a later point. There is no hard or fast rule in instantaneous forms of communication and that when they occur the problems posed by them must be resolved by reference to the intention of the parties, sound business practices and in some cases judgments of where the risk