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Formation of contract

Formation of contract. Consideration. Consideration. The price paid for the promise. Bargain. A promise asked for, or relied upon, as an aspect of a bargain between the parties to the contract Dunlop Pneumatic Tyre Company v Selfridge & Company [1915] AC 847

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Formation of contract

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  1. Formation of contract Consideration

  2. Consideration... The price paid for the promise

  3. Bargain • A promise asked for, or relied upon, as an aspect of a bargain between the parties to the contract • Dunlop Pneumatic Tyre Company v Selfridge & Company[1915] AC 847 • Australian Woollen Mills v The Commonwealth(1954) 92 CLR 424

  4. “An act or forbearance of one party, or promise therof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable” Sir Frederick Pollock, adopted by theHouse of Lords in Dunlop Pneumatic Tyre Company Ltd v Selfridge & CompanyLtd at 855

  5. Consideration • Must be bargained for • Must be performed in return for a promise – quid pro quo • Is a required element in the formation of a contract • except deeds

  6. Without consideration a promise cannot be enforced: SO, only a party providing consideration can enforce a promise • Consideration must move from the promisee • But, it need not move to the promisor

  7. Past consideration is not good consideration Consideration may be • executory • executed • BUT, not past. If what is done is not done as a reaction to the promise, it cannot be good consideration • Roscorla v Thomas(1842) 3QB 234 • Eastwood v Kenyon(1840) 113 ER 482

  8. PRIVITY OF CONTRACT Only parties to a contract may enforce, or be bound by, a contract

  9. Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co “My lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.” Lord Haldane at 853

  10. Cases on Privity • Tweddle v Atkinson [1861] 121 ER 762 • Beswick v Beswick [1966] 1 Ch 538.

  11. Summary For a contract to be formed there must be: • An Offer • Which has been Accepted • by parties who intended to create legal relations • And bargained or paid for their mutual promises in the form of Consideration • And only these parties may enforce thecontractual promises (Privity)

  12. Contents of the Contract Terms

  13. Term or representation? • Objective test of intention • “reasonable man” • Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 • Indicative factors include • Importance of statement • Time between statement and contract • Special knowledge or skill or access to truth of one party • Inclusion of statement in any subsequent document • Ellul &Ellulv Oakes (1972) 3 SASR 377

  14. Term or representation • Oscar Chess Ltd v Williams [1957] 1 AllER 325 • Dick Bentley Productions v Harold Smith Motors [1965] 2 AllER 65

  15. Dick Bentley case: “[I]t seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and it actually induces him to act upon it by entering into the contract, that is prima facie ground for inferring that it was intended as a [term of the contract]. …But the maker of the representation can rebut this inference if he can show…that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.” LordDenning MR at 67

  16. What kind of term? A term may be either: • a Condition • Essential term • Breach – entitlement to terminate/or damages • a Warranty • Ancillary term • Breach – damages, but no termination • an Innominate term • Intermediate term • Breach – termination if sufficiently serious

  17. Test: how essential was the promise? “The question whether a term in a contract is a condition or a warranty, i.e. an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict, or a substantial, performance of the promise, as the case may be, and that this ought to have been apparent to the promisor…. Jordan CJ in Tramways Advertising v Luna Park

  18. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) NSWLR 633 • Associated Newspapers Limited v Bancks(1951)83 CLR 322

  19. Warranty • Bettini v Gye(1876) 1QBD 183 per Blackburn J said at 188: “[a condition is] a stipulation [which] goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract a thing different in substance from what the defendant has stipulated for.”

  20. Implied terms Terms may be implied by: • Trade usage or custom • Statute • Courts, based on facts and circumstances of contract

  21. Austral Pacific Group Ltd (in liq) v Airservices Australia (2000) 203 CLR 136 “…statutorily created and take effect by legal fiction, namely that the parties make a contract including the relevant obligations.”

  22. Terms implied by Statute

  23. Revise: How to read a statute E.g. TRADE PRACTICES ACT 1974 - SECT 52 Misleading or deceptive conduct             (1)  A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

  24. Elements of a section: • Corporation • In trade or commerce • Engage in conduct • Misleading or deceptive • Defined by legislation (definitions section) or by courts (case law.)

  25. Legislation • Sale of Goods Act 1923 (NSW) • Contract for the sale of goods (not services) • Trade Practices Act 1947 (Cth) • Contract for supply of goods or services by a corporation to a consumer

  26. Sale of Goods Act 6 Sale and agreement to sell (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. There may be a contract of sale between one part owner and another.

  27. Trade Practices Act – Part V Division 2 Conditions and Warranties in Consumer Transactions e.g. - s 70 Supply by description (1)  Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer …

  28. Consumer s4B TPA (1)  (a)  a person shall be …a consumer if, and only if:             (i)  the price of the goods did not exceed the prescribed amount; [$40,000]or            (ii)  where that price exceeded the prescribed amount-- the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle;              and the person did not acquire the goods, or hold himself or herself out as acquiring the goods, for the purpose of re‑supply or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land; …

  29. Corporation – extended definition • s6 TPA • Corporation • foreign, trading or financial corporation • Persons • in trade or commerce between either of the States or territories or between Australia and places outside Australia • using post or telephonic services • active within a territory

  30. s18 Sale of Goods Act 1923 (NSW) Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale be by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

  31. TRADE PRACTICES ACT 1974(Cth)- s 70 Supply by description (1)  Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer by description, there is an implied condition that the goods will correspond with the description, …

  32. Correspondence with description SGA s18: Sale by description Where there is • a contract • for the sale ofgoods • by description, • there is an implied condition • that the goods shall correspondwith the description; …

  33. Sale by description? Ashington Piggeries v Christopher Hill [1971] 1AllER847 Grant v Australian Knitting Mills (1936) 54 CLR 49

  34. Ashington Piggeries case: • Viscount Dilhorne: “Did the presence of DMNA merely affect the quality of the herring meal or did it make a difference in kind? If the former, then there was no failure to deliver in accordance with the description. If the latter, there was.”

  35. Fitness for purpose SGA s19(1) Fitness for purpose • Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.

  36. Trade Practices Act s71(2) Where a corporation supplies … goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the skill or judgment of the corporation or of that person.

  37. Purpose made known? • Obvious purpose? • Underpants – Grant v Australian Knitting Mills Reliance on seller’s judgement? • Ashington Piggeries v Christopher Hill.

  38. Course of seller’s business? • David Jones Ltd v Willis (1934) 52 CLR 110 • Ashington Piggeries v Christopher Hill Not trade name? • Reliance, not reputation

  39. TPA s71 • Similar to s18 • Consumer requirement • Purchase by trade name not a bar • E v Australian Red Cross Society (1992) • Provision of services • – not supply of goods.

  40. Merchantable quality Sale of Goods Act s19(2) (2) Where goods are • bought by description from a • seller who deals in goods of that description (whether the seller be the manufacturer or not), • there is an implied condition that • the goods shall be of merchantable quality…

  41. Trade Practices Act s71 (1)  Where a corporation • supplies… • goods to a • consumer • in the course of a business, • there is an implied condition that • the goods supplied under the contract for the supply of the goods are of merchantable quality,…

  42. Merchantable quality?   66(2)  Goods of any kind are of merchantable quality within the meaning of this Division if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.

  43. Merchantable quality? Carpet Call Pty Ltd v Chan(1987) ATPR 41-025 Rasell v. Garden City Vinyl and Carpet Centre Pty Ltd (1991) ATPR 41-152

  44. Flooring: Mavis was particularly interested in flooring as she had difficulties keeping her slate tiles clean. She searched for low maintenance flooring and after extensive shopping decided on single sheet vinyl flooring. She saw just the thing at Discount Lino Barn, close to Kylie’s home. Kylie indicated that she didn’t share her mother’s preference for vinyl flooring as it was cold underfoot and had suggested kitchen carpet. Kylie and Mavis spoke to Mike at Discount Lino Barn who suggested under-floor heating could address Kylie’s temperature issues. Kylie provided details of the under floor heating options while her mother left the conference room to offer slices of her coffee cake to the other staff….

  45. She is also angry about the flooring she has had installed. Despite Kylie’s protests she went with the single sheet vinyl, and did not have under floor heating installed. The vinyl, while easier to clean than the slate, is marking and scuffing badly however. She has only had it down 6 months, and already there are a number of wear marks. Her cupcake classes – which she runs 5 times a week and more often in school holidays – are now so popular that she has at least 20 students per class. Because of her renovations she has room for them all around her lovely new island bench, but the vinyl around the island bench almost looks like a race track.

  46. It is as if her students have worn a path around the bench – and in only 6 months. The vinyl was quite expensive – as she had heavy grade domestic installed – but Mavis is very unhappy. She hasn’t yet paid the bill for the vinyl as she has been arguing with the company. They are, according to Mavis, now getting nasty, and want their $45,000 immediately.

  47. Fridge She also advised that her mother was having problems with Whitegoods World from which she had bought her fridge. Kylie advised that her mother required a “French door” fridge with freezer drawers underneath to accommodate the large baking trays she used for her cakes. She had ordered the fridge she needed from Whitegoods World but had experienced delivery problems.

  48. Her oven purchase was much more successful than her fridge which, on the very day it was due to be delivered – not only did not arrive, but the shop called her to advise that delivery was delayed for one month. Mavis said to the shop keeper: “Well that’s no good to me. I ordered that fridge for today. I need that fridge today. I told you when I needed the fridge. The only reason I ordered from you was that you told me I could have it today. If you can’t give it to me today, you can just keep your fridge!! I don’t want it anymore.” Mavis then rang Quick Fridge and ordered and received another fridge that afternoon– suitable for her requirements.

  49. However, one month later, Whitegoods World delivered the fridge originally ordered and demanded payment. Mavis refused to accept the fridge or to pay, and advised them that the order had been cancelled. They are threatening to sue Mavis for the price of the fridge - $5,500.

  50. Oven Mavis returned to the conference room. She advised that she had had to make a large coffee cake that morning, even though her preference would have been to make cup-cakes. In fact, one of her legal problems was her cup-cake oven. Cake Cookers is a specialist retailer which sells products designed for those who like to cook cakes. It retails a number of specialist pans and other baking utensils – many imported from America and not readily available in Australia - as well as a special range of cake ovens.

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