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Law of Contract

Law of Contract. Contract An agreement between two or more persons that will be enforced by law May be In writing Oral Partly in writing and partly oral Contracts need not be in writing (some exceptions). Analysing a Contract. Is there a contract?. What are the terms?.

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Law of Contract

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  1. Law of Contract

  2. Contract • An agreement between two or more persons that will be enforced by law • May be • In writing • Oral • Partly in writing and partly oral • Contracts need not be in writing (some exceptions)

  3. Analysing a Contract Is there a contract? What are the terms? Is it valid & enforceable? Has it been discharged? Has there been a breach?

  4. Six Elements • Offer • Acceptance • Intention to create a contract • Consideration • Contractual Capacity • Certainty The elements are not always clear

  5. Law of Contract Offer

  6. Offer • Specific legal meaning • An offer exists only where a reasonable person would conclude on the facts that the person was willing to be bound in a court of law • Distinguish • Indication of future conduct • Invitation to treat • Negotiations

  7. Indication of Future Conduct • A mere statement of a present intention to do something in the future is not an offer • Harvey v Facey (S&O p 70) • Australian Woollen Mills v Commonwealth (S&O p70) • Harris v Nickerson (S&O p71) • Kelly v Caledonian Coal Co (S&O p71)

  8. Invitation to Treat • An invitation to • Negotiate • Make an offer is not an offer but an “Invitation to Treat” • The distinction lies in the objective intention of the person making the offer or invitation to treat.

  9. Invitation to Treat • Retail Displays • Catalogues • Advertisements • Auctions • Tenders

  10. Retail Displays • Fisher v Bell (S&O p72) • Pharmaceutical Society v Boots (S&O p73) • In most circumstances the retailer does not make an offer by displaying goods for sale, even where the goods are marked with a price

  11. Catalogues • Grainger v Gough (S&O p73) • If the catalogue publisher was making an offer then it would be bound by every acceptance even if their stock was exhausted.

  12. Advertisements • Depends on circumstances • Carlill v Carbolic Smoke Ball Co (S&O p74) • But note legislative restrictions e.g. Trade Practices Act

  13. Negotiations • An offer will not arise merely because parties have reached agreement on one aspect of the deal • Implied (or express) understanding that parties not bound until formal contract executed • Heads of Agreement

  14. Fate of An Offer • Withdrawn by offeror • Accepted by offeree • Rejected by offeree • Lapse due to passing of time • Lapse due to death of offeror or offeree • Lapse due to failure of condition precedent

  15. Withdrawing an Offer • Cannot be withdrawn after accepted • A contract is made when the offer is accepted • The withdrawal of the offer must be communicated to the offeree • Special cases: • Unilateral offers • Options cannot be withdrawn

  16. Withdrawing an Offer Before Acceptance • Generally, an offeror may withdraw an offer at any time before acceptance • Routledge v Grant (S&OR p78) • But, options cannot be withdrawn • an option is a separate enforcable obligation and cannot be withdrawn • Exists where the offeree has given consideration to keep an offer open • Goldborough Mort v Quinn (S&OR p 80)

  17. Withdrawal Must be Communicated • Offeror must let the offeree know that the offer is withdrawn • Byrne & Co v Tienhoven & Co S&OR p79) • Offeror does not have to communicate withdrawal personally • Would a reasonable person in the position of the offeree conclude that the offer had been withdrawn?

  18. Withdrawing a Unilateral Offer • Involves a unilateral promise e.g. Carllil v Carbolic Smoke Ball Co (S&O p74) • If offeree has acted on the promise then offeror cannot withdraw until offeree has had a reasonable opportunity to complete

  19. Rejecting an Offer • Once rejected, an offer cannot be accepted • May be rejected expressly or by implication • Implied • Offeree’s actions are inconsistent with an intention to accept

  20. Rejecting An Offer (Cont.) • A counter offer is a rejection • Hyde v Wrench (S&O p81) • Any material alteration is a counter offer • Restating the offer when accepting is not a counter offer • Turner Kempson v Camm (S&O p81)

  21. Rejecting An Offer (Cont.) • A counter offer is a rejection (cont.) • Asking for clarification is not a counter offer • Reasonable person test • examine all circumstances

  22. Lapse of Offer • Due to death of either party unless • An option; and • Does not involve personal skill or service by the deceased • Due to failure of condition precedent • Due to time • Express time limit • Otherwise, offer remains open for a reasonable time

  23. Lapse of Offer (Cont.) • Due to time (Cont.) • What is reasonable time depends on: • Method by which offer made • Nature of the transaction • Terms of Proposed Contract • Actions of parties between offer & purported acceptance • Intimations as to time by offeror

  24. Law of Contract Acceptance

  25. Accepting the Offer • Only person to whom the offer was made may accept • Acceptance must be final & unqualified • Must be communicated to the person who made the offer (some exceptions)

  26. Accepting the Offer (Cont.) • Acceptance must be final & unqualified • “Subject to Formal Contract” – 3 possibilities • There is a contract & one of terms is that documentation be prepared • There is a contract but nothing can happen until contract prepared

  27. Accepting the Offer (Cont.) • Acceptance must be final & unqualified (cont.) • “Subject to Formal Contract” (cont.) • There is no contract • Masters v Cameron (S&OR p82) • Plastyne Products v Gall Engineering (S&OR p83) • Communications after acceptance are irrelevant

  28. Acceptance Must be Communicated • Silence does not amount to acceptance • Acceptance by large companies • Who must receive acceptance? • Depends on intention of parties • Acceptance usually occurs when the communication is received in the ordinary course of business or would have been received if ordinary course of business were followed

  29. Acceptance Must be Communicated • Internet • Electronic Transactions Act • Receipt occurs when it enters the addressee’s designated information system • Otherwise, when it comes to attention of addressee

  30. Acceptance Must be Communicated • Express Communication of Acceptance is not necessary where • Implied from past dealings between parties • Industry custom • Acceptance indicated by conduct • Unilateral contracts • Postal rule applies

  31. Acceptance Must be Communicated • The Postal Rule • Applies where offeror has expressly or impliedly accepted post as the means of communication of acceptance • Acceptance occurs at time of posting not receipt • Applies to all situations where non-instantaneous communications are used • Often determines jurisdiction • Berinkibon v Stahag Stahl (S&OR p 86)

  32. Acceptance Must be Communicated • Mode & timing of acceptance must conform to offeror’s requirements • BUT, nominating a mode of acceptance may not set the only mode of service • Spectra v Pindari • Agent of the person to whom the offer was made may accept on their behalf • Powell v Lee (S&OR p87)

  33. Has an offer been made? No No Contract Yes Did the offeror intend to revoke the offer? Did the offeror communicate revocation? Yes Yes No Has the offer lapsed? No Yes No Has acceptance been received by the offeror? Yes No Was acceptance made under the postal rule? Contract No Yes

  34. Exercises

  35. Exercise 3.25 • Marlena offered to sell her car to John for $78,000. • John said that he would “need some time to think about it” and would “get back” to her. • After 3 days John called and said that he accepted Marlena’s offer. • Marlena informed John that, since she hadn’t heard from him, she had sold the car to Kirsten. • Advise John as to whether he is entitled to the car

  36. Exercise 3.27 Baral Ltd is a building materials wholesaler. On Monday, the company received by post an order from a regular customer requesting 3 tonnes of cement gravel to be delivered according to the terms on the order form on Monday week. The company immediately signed the order form and posted back its confirmation that it would deliver on the order as requested. It was usual for these companies to deal by post.

  37. Exercise 3.27 (cont.) The confirmation of order form would usually have taken only a few days to reach the customer but unfortunately, due to a postal strike, the customer did not receive acceptance of the order until Friday night, by which time it had already ordered the same materials from an alternative wholesaler (assuming that Baral Ltd was unwilling or unable to deliver) and faxed Baral Ltd cancelling the order (the fax arrived on Friday night but was not read by anyone from Baral until Monday morning). The customer is refusing to accept the gravel or pay for it. Advise Baral Ltd.

  38. Exercise 3.30 • Same facts as before • Would your answer change if: • The order had been received by email and the return email confirming the order had been slow to reach the customer due to a network failure; only reaching the server on Monday night: by which time the customer had faxed a cancellation of the order • The order had been received by fax and the return fax had not been read by the customer until after the customer had revoked the order by fax

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