week 2 - contract formation 1 (agreement and certainty)

• what is a contract?

  • contracts are legally enforceable promises
  • "the building block of commerce"
  • A contract is an agreement between two or more parties where legal rights and obligations are created which can be enforced, if necessary, in the courts
  • eg. when a business supplies g/s, receives stock from suppliers, when a firm hires employees, a firm takes out insurance, takes out a loan
• what is a contract? (more specific)

  • contracts exist when all requirements for contract formation are satisfied they can partake in any form
  • eg. can be written, oral, partly written and oral, and maybe signed or unsigned
• what do contracts do?

  1. promote certainty - legal binding promises, certainty of compensation if contract is breached
  2. facilitate planning - firms that are more certain for future are able to plan better for future
  3. establish the market value for g/s - determined by many transactions in a market and each transaction is based on a contract
  4. provide for formal dispute resolution (when required) - some contracts even set out how disputes must be resolved
• what do contracts do?

  1. promote certainty - legal binding promises, certainty of compensation if contract is breached
  2. facilitate planning - firms that are more certain for future can for future
  3. establish the market value for g/s - determined by many transactions in a market and each transaction is based on a contract
  4. provide for formal dispute resolution (when required) - some contracts even set out how disputes must be resolved
  5. allocate risk - always risk in business. contracts allocate responsibilities as well as who is at risk if things may not happy during a contract
• elements of a legally binding contract

  A) agreement

  B) intention

  C) consideration

  D) capacity

  E) consent

  
• agreement vs contract

  • all contracts are based on agreements but agreements themselves aren't contracts
  • a legally binding contract requires more than an agreement (refer to the elements of a contract)
• what is an offer?

  • A proposal by one party, known as the offeror, who communicates to another party/parties to enter into a legally binding agreement.
  • offeror - can be buyer or seller
  • agreement = if the other party ACCEPTS the offer
  • mere puffs & invitations to treat are types of communication that are NOT offers (thus cannot be accepted)
• mere puff

  • a statement containing exaggerated claims about g/s that no reasonable person would take seriously
  • important part: "how a reasonable person would interpret it"
  • eg. advertisements ("best coffee in the universe", "walking distance to everything")
• contract law case - Carlill v (and) Carbolic Smoke Ball co

  • context: 1892 treatment of flu and Carbolic smoke ball claimed to offer $100 for anyone who used its product and still unwell
  • facts: Carlill used the product, still got sick, and claimed the reward but the company refused to pay
  • issue: had a contract been formed? is the ad a puff or an offer?
  • conclusion: use the reasonable person test. The ad was not a puff and the offer was accepted (contract formed), due to the "$1000 deposit put forward" seriousness

  
• Leonard v PepsiCo

  • both parties believed they had an arguable case but again, the reasonable person test must be used
  • unlike Carlill, the harrier jet offered was intended to be a joke however the SAME legal rules should have be applied, just in different circumstances
  • extra: precedent can only be rejected by a higher court in the same hierarchy
• invitations to treat

  • they are NOT offfers, they are indications that a person is prepared to negotiate
  • they cannot be accepted (they're not offers) so it doesn't lead to a legally binding contract, but it may lead to an offer being made (which then, can be accepted)


  Gibson v Manchester city council

  • council offered their flats to be sold through applications. Gibson put in the application but all flats had been sold, the communication was concluded NOT an offer but an invitation (his application was the offer which council rejected)
• Invitations to treat - Boots case

  • displaying items for sale on shelves in a store is an invitation to treat, not an offer
• Invitations to treat - Boots case

  • displaying items for sale on shelves in a store is an invitation to treat, not an offer
  • issue: whether the display of goods with price tags was an offer or merely an invitation to treat
  • the offer: is made by the customer when presenting the items at the register. The cashier's acceptance of the money was not an acceptance of the offer but a completion of the transaction. This is important bc it allows the seller to refuse the sale from display before the customer makes an offer.
  • the contract is formed from the cashier's acceptance of offer
• offers can be made to

  • a specific person (eg. henry)
  • a particular class of people (eg. members of biomed unit team)
  • The world (leading to a unilateral contract - carlill case)
• unilateral contract

  • where one party makes a promise in exchange for a specific act by another party
  • eg. reward offer: if someone promises a reward to anyone who finds and returns a lost item, the contract is formed only when someone actually finds and returns the item
• offers can be ended

  • when they are purposely revoked (revocation)
  • due to expiry of time (ie. a stated time)
  • when a counter offer is made
• Revocation

  • can occur at any time but must be communicated effectively (when an offer is purposely revoked)


  Byrne v Van Tienhoven

  • B offers V, B revokes offer, B accepts offer, B receives revocation letter
  • issue: did revocation of acceptance come first?
  • conclusion: the communication didn't come until 20th but acceptance occured on 11th. So the acceptance was effective, not revocation

  
• Options & option contracts

  • An option is a contract, it is a promise to keep an offer open for a period of time (supported by consideration) which makes the promise legally binding (ie. prevents revocation)


  Goldsborough Mort v Quinn

  • Q promised M to purchase a certain property in a week. M gave Q five shillings in consideration. Before the week ended, Q revoked the offer. M sued Q.
  • conclusion: as it was an option contract, and something in value was given, the offer could not be revoked. M won
• Counter offer

  • a response to an offer but proposes to change the original offer. It kills the original offer and the old offer can no longer be accepted.
  • for there to be a contract: the counter offer must be ACCEPTED


  Hyde v Wrench

  • W offered H $1200 land, H refused, W offered $1000. H refused, H wanted $950. W refused, H wanted $1000, W refused. W won because H's $950 counter offer killed the $1000 one.
• Request for information - Stevenson Jaques v McLean

  • M offered to sell iron to J and promised the offer would be open until monday. J asked M a question regarding delivery. M sold the iron, J sued. M won
  • Conclusion: J's response was a request for information and not a counter offer so the original offer was not revoked.
• Terms

  • contract: an agreement b/w 2 or more parties that the law will enforce
  • puffery: exaggerated statements about g/s that no reasonable person would take seriously
  • invitation to treat: an indication that someone is prepared to enter negotiation and MAY result in a contract
  • agreement: when acceptance to an offer is communicated
  • offer: an expression of willingness to enter a contract (a proposal)
• Acceptance

  • saying "yes" (assent) to an offer, hence reaching an "agreement"
  • an agreement is the first requirement for there to be a contract
  • Acceptance must be communicated to the offeror: words/writing
• visualisation

  A) agreement

  B) contract

  
• Acceptance - Felthouse v Bindley

  • if the offeree is silent, no acceptance can be made
  • ie. "if i don't hear from you the deal is made" WRONG

  Acceptance - R v Clarke

  • if the offeree is unaware that an offer has been made, there is no accepatnce
  • Acceptance must be unconditional (no new/changed conditions)
• Acceptance

  • Acceptance must follow the conditions (if any) set out in the offer
  • only the party who the offer is made to, can accept it
  • Acceptance must occur within the set time or within a reasonable time


  Powell v Lee

  • Acceptance must be made in a regular and authorised manner
  • A hired B, A didn't communicate it, it got leaked (not communciated in an authorised manner), A changed its mind.
• Acceptance: battle of the forms

  • firms have their own standard terms and conditions to make contracts
  • the ‘last shot’ doctrine: last sent terms apply because they are the last counter-offer that is accepted by performance
  • Maxitherm Boilers v Pacific Dunlop
• Acceptance: electronic communications

  • Electronic transactions act 1999 intersects with common law due to the TIMING problem (did acceptance of revocation come first?)
  • Designated electronic address: message received when it reaches the server, whether or not it is read, and whether or not the recipient knows it is there (ie. when it ARRIVES in inbox)
  • Non-designated electronic address: message received when it reaches the server, when recipient has become aware of it, even if it hasn’t been read (ie. when they SEE it in the inbox)
• Acceptance: certainty

  • Certainty requires that the parties have agreed on all terms or have agreed on a method to settle outstanding terms, but this does not mean that terms can’t be susceptible to different interpretations
  • ie. certainty = when the terms are agreed
  • Council of the Upper Hunter County District v Australian Chilling & Freezing Co
• consideration - refers to something of value that is exchanged between the parties to a contract.

  • gives each party a reason to enter into the agreement