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Formation of a contract

Formation of a contract. A contract is an agreement that is enforceable at law. Characteristics of a Contract. 1. There will be a promise or promises. 2. They will be made by “parties to the contract”. 3. They will create an obligation. 4. That obligation will be enforceable at law.

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Formation of a contract

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  1. Formation of a contract

  2. A contract is an agreement that is enforceable at law.

  3. Characteristics of a Contract 1. There will be a promise or promises. 2. They will be made by “parties to the contract”. 3. They will create an obligation. 4. That obligation will be enforceable at law. 5. Often found in negotiations, rather than a formal document.

  4. OFFER/ACCEPTANCE ANALYSIS OFFER + = AGREEMENT ACCEPTANCE INTENTION CONSIDERATION CAPACITY

  5. Carlill v Carbolic Smoke Ball[1893] 1 QB 256 • Unilateral contract • Offer can be made to world at large • Distinguish offer from invitation to treat by looking at intention of offeror • Unilateral contract – offer made at large, but only accepted by those who actually perform • Unilateral contract – communication of acceptance not required • Consideration can equal detriment/effort

  6. Offer “the indication by one person to another of his or her willingness to enter into a contract with that person on certain terms” Carter and Harland, “Contract Law in Australia” 4th edn p28

  7. Essential features of an offer: • The offeror must intend to be bound by the offer • The offer must be communicatedto the offeree • The offer may be made to one person, a class ofpersons, or the whole world • The offer must contain enough information (certainty) to allow a binding contract to come into existence

  8. All an offer needs is a “yes” to make a contract

  9. An offer is not: A request for the supply of information Harvey v Facey [1893] AC 552 An invitation to treat Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1QB 401. Gibson v Manchester City Council [1979] 1AllER 972

  10. Examples of Invitations to Treat • advertisements/circulars • price lists • displays of goods in shops • calls for bids at auctions, and • calls for tenders.

  11. Termination of Offers • Acceptance • Revocation • Rejection • Condition in offer not fulfilled • Lapse of time • Death of a party

  12. Revocation • Must be communicated • Prior to acceptance – Byrne v Van Tienhoven • Communication can be by third party or conduct– Dickinson v Dodds • Not bound by statement to keep offer open for a specified time – Dickinson v Dodds • Unless option– Goldsborough Mort v Quinn

  13. Revocation of unilateral contract • Communication? • Same as offer Shuey v United States • Acceptance commenced but not complete? • Old view – implied promise not to revoke until reasonable time for performance had elapsed • Errington v Errington; Veivers v Cordingly • New view – offeror may revoke once acceptance has commenced • Damages may lie (breach of ancillary/implied promise) • Mobil Oil Australia Ltd v Welcome International Pty Ltd

  14. Rejection • Rejection terminates an offer • Counter offer is a rejection • Hyde v Wrench • Response is not always counter offer/rejection • May be clarification or request for information • Stevenson v McLean

  15. Acceptance A FINAL and UNQUALIFIED assent to the terms of an offer made in the manner specified or indicated by the offeror The “yes” which ends negotiations

  16. Acceptance: • May be oral • In writing • Or by conduct

  17. Acceptance must respond to the offer So, only those persons: -to whom the offer was made; and -who have the offer in mind at the point of “acceptance” may accept R v Clarke: must rely on offer at time of acceptance

  18. What Can Be Accepted? • Only what was offered (without any additions, deletions or conditions) • Must end negotiations • Must be unqualified • Battle of the forms (cf counter offer) • Butler Machine Tool Co Ltd v Ex-cell-O Corp (England) Ltd

  19. Acceptance must be communicated • Silence is not sufficient • Felthouse v Bindley • Conduct may communicate acceptance • Brogden v Metropolitan Railways • Empirnall Holdings v Machon Paul

  20. Exceptions to communication • Waiver • Unilateral contract • Carlill v Carbolic Smoke Ball • Postal Acceptance Rule • Acceptance complete on posting (constructive vs actual communication) • Within the reasonable contemplation of the parties • Adams v Lindsell • May be excluded by request for notice (actual communication) Bressan v Squires

  21. Conditional acceptance Can you accept ‘with strings attached’? - “subject to” some reservation. NO - BECAUSE there is no “final and unqualified assent to the terms of the offer.” Whether an acceptance is truly “conditional” depends on whether the parties INTENDED TO BE BOUND by what they agreed.

  22. The Three Possibilities fromMasters v Cameron 1. The parties had reached FINALITY, intended to be bound immediately, but wanted the terms set out in a MORE PRECISE but NOT MATERIALLY DIFFERENT form. 2. The parties had reached finality, intended NO DEPARTURE from the terms of the agreement but made PERFORMANCE of one or more of the terms conditional on execution of a formal document. 3. The parties did not intend to make a CONCLUDEDBARGAIN unless or until a formal contract was drawn up.

  23. Uncertain and incomplete agreements not enforceable BECAUSE the courts cannot be sure what was agreed.

  24. Courts will make certain that which is capable of being made certain

  25. “Agreement to agree” not enforceable as final agreement not reached“Agreement to negotiate in good faith” may be enforceable (Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd)Agreement with missing terms may be completed (and enforceable) if terms can be objectively determined (eg arbitration clause.) (Booker Industries v Wilson Parking)

  26. INTENTION TO CREATE LEGAL RELATIONS “To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly” Atkin LJ in Rose & Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 at 293

  27. Rebuttable presumptions • In social and domestic agreements there is a presumption against legal obligations • Balfour v Balfour • Cohen v Cohen • Jones v Padavatton • The presumption is rebuttable • Merritt v Merritt • Todd v Nicoll • Wakeling v Ripley

  28. Rebuttable presumptions • In business or commercial agreements, there is a rebuttable presumption that the parties did intend to create legal obligations • Carlill v Carbolic Smoke Ball • Rose & Frank Co v Crompton & Bros Ltd • Honour clause

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