CONTRACT A (LAW2CTA) EXAMINATION NOTES 2013 Sierra Callaway

CONTENTS

Agreement 3 General principles 3

Offer 4 4 Forms of offer 7 Termination of offer 7

Acceptance 9 Who can accept an offer? 9 Acceptance must occur in response to the offer 9 There must be correspondence between the 9 There must be communication of acceptance 10 Postal Acceptance Rule 10 Form of acceptance 10 Acceptance by conduct 11

Intention to Create Legal Relations 13 Social and domestic arrangements 13 Commercial arrangements 15 Preliminary agreements 15 Honour clauses 16 Heads of agreement 16 Government transactions 17

Consideration 18 Principles of 18 Mutuality 19 Valuable need not be adequate 19 Executory/executed 19 Must move from promisee 19 NOT valid consideration 19 Illusory promises 19 Illegal promises 19 Past consideration 20 Performance of existing public duties 20 Performance of existing contractual duties 21

Estoppel 25 Where to use 25 Types of estoppel 26 Elements of estoppel 27 Assumption 27

2 Inducement 28 Detrimental reliance 29 Unconscionable conduct 29

Certainty 32 Incompleteness 33 Omissions 33 Parties are still negotiating 34 Illusory promises 35 Agreements to negotiate 37 Unclear or ambiguous agreements 39 Curing ambiguity 40 Severance 40 Waiver 41 Implication of terms 41 Rectification 42

Express Terms 43 Incorporation 43 Oral 43 Written/partly written contracts 43 Signed 43 Unsigned 44 Parol rule 44 Incorporation by reasonable notice 48 Incorporation by prior course of dealing 49 Incorporation by reference 49 Promissory 49

Implied Terms 51 Terms implied in fact 51 Formal contracts 51 Informal contracts 54 Terms implied by law 54 Generic terms 54 Universal terms 56

Interpretation of Terms 61 Objective approach 61 Context of the 61 Internal context 61 External context 62 Plain meaning rule 62 Ambiguity 65 Extrinsic evidence 65 Implied terms and the factual matrix 66 Construction 67

3 Termination by Agreement Distinguishing preliminary agreements and contingent conditions 68 What are preliminary agreements? 68 Main legal issues 69 Classification of preliminary agreements 69 Failure of contingent conditions on performance 70 What are contingent conditions? 70 Types of contingent conditions 70 The right to terminate for non-fulfillment of a contingent condition 71 Procedure for termination 71 Effect of election to terminate 72

Termination for Breach 73 Performance and breach 74 Standard of performance 74 Order of performance 74 Types of breach 74 Failure to perform 74 Repudiation 74 Right to termination 74 Express contractual rights to terminate 74 Problems of construction 75 Constraints arising from implied terms 75 Damages for loss of bargain 75 Termination without express contract right 75 Breach of an important term 75 Breach causing substantial loss of benefit 79 Repudiatory conduct 80 Delay 83 Restrictions on the right to terminate 85 Election and waiver/affirmation 85 Ready, able and willing to perform 85

Consequences of Termination clause 86 Recovery of a debt 87 Right to retain money 89

4 AGREEMENT

GENERAL PRINCIPLES: • Agreement is assessed objectively – What would a infer or deduce form observing the exchange between the parties – contract or no contract? • “The subjective beliefs of the parties are generally irrelevant…” Brambles Holdings Ltd v Bathurst City Council • The legally relevant moment of offer + the legally relevant moment of acceptance = Agreement • As a general rule, a contract comes into being when and where an acceptance of an offer is communicated to the offeror • ‘Subject to contract’ – Very strong presumption that contractual relations will not be established unless and until a formal contract has been executed.

Alternative Approach – The ‘Global’ Approach: • ‘Global’ approach – the court’s task is to ask whether, objectively and having regard to the totality of the dealings between the parties, they should be considered to have entered into a contractual relationship without inquiring too closely into the formalities of offer and acceptance. Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd; Gibson v Manchester City Council

Tripartite : • Courts are prepared to hold that a contractual relationship exists between A and B when A makes a promise to B who, in reliance on that promise, enters into a contract with a third party, C, when that contract is of some benefit to A. The consideration given by B for A’s promise is the indirect benefit that A derives from the contract between B and C.

5 OFFER

OUTLINE OF OFFER: 1. Offer vs. Invitation to Treat

2. Forms of offer 3. Termination of Offer (a) (b) Rejected by offeree (c) Lapse of time (d) Death of either party

An offer is a clear statement of the terms by which the person making the offer is prepared to be bound.

The offeror must indicate their willingness to be bound immediately upon acceptance. This willingness is determined objectively, according to outward manifestations of intention (i.e. the offeror’s conduct). In determining intention, conduct is assessed from the perspective of the reasonable person in the position of the offeree.

The existence of an offer is a question of fact determined on a case by case basis. It may be express (written or spoken) or implied (from the offeror’s conduct). In either case, the conduct alleged to amount to an offer must be promissory in nature.

A contractually significant offer is: • A definite proposal • Giving a choice between acceptance and rejection • Indicating willingness to be bound without further negotiation • DEFINITE – CLEAR – FINAL • Objectively ascertainable

Invitation to Treat

An invitation to treat is an invitation for someone to make an offer.

Invitations to Treat: 1. Advertisements Advertisements are generally regarded as invitations to treat, expecially where the advertisement occurs in a catalogue or newspaper.

Offers in catalogues are invitations to treat, because no-one could ever offer to supply an infinite quantity of product to everyone – the offer will be made by the customer.

6 Placing an advertisement in a newspaper does not amount to ‘offering for sale’ because it is an invitation to treat

2. Display of goods Display of goods in shop windows with prices are merely invitations to treat. • In a self-service department store, the offer by the customer when they take their goods to the counter, at which point the shopekeeper decides whether to accept their offer (Boots Cash Chemists – see below) • Displays in shop windows are not ‘offers for sale’ but invitations to treat, even with a price tag affixed; the display is simply inducing offers for the listed price

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V BOOTS CASH CHEMISTS (1953)

• Court held that the display of goods on a shelf in a store is an ‘invitation to treat’ • When a customer takes a product off the shelf to the cashier they make the offer. The cashier can then accept/reject that offer

3. Auctions An auctioneer’s call for bids is only an invitation to treat. Bidders make offers to buy at the asking price, which may be accepted ‘by the fall of the auctioneer’s hammer’ (Payne v Cave)

However, goods offered for auction ‘without reserve’ implied the existence of a collateral contract that the goods will be sold – however, it still does not constitute a definite offer.

4. Tenders Tendering involves one party (who to buy, sell, or have work performed) calling for expressions of interest from other parties in respect of the price at which they are prepared to deal. The first party then reviews the tenders and is at liberty to decide whether any will be accepted.

Announcement calling for tenders is an invitation to treat; offer comes from the submitter of an individual tender, and each tender is a separate offer (Spencer v Harding)

Not Invitations to Treat: The essential difference between an offer and an invitation to treat is the offeror’s intention to be bound by any potential acceptance. Offers embody that intention. Invitations to treat do not.

In determining whether a statement is an offer, the intention of the alleged offeror is determined by reference to three factors: i. Terminology used

7 ii. Limitations upon who could accept the offer iii. Limitations upon what was being offered

In order for a party’s conduct to be characterized as being a legal offer capable of acceptance, the facts must suggest that they intended to be bound.

1. Offers to the world at large Offers to the world at large are quite capable of being an offer and not just an invitation to treat, provided that is what the offeror intended.

CARLILL V CARBOLIC SMOKE BALL CO.

Facts: • Carbolic offered a 100 pound reward for anyone who contracted influenza after using its carbolic smoke ball • They states that 100 pounds had been deposited into its bank account to show their sincerity • Mrs Carlill bought and used their product, but still caught influenza, and sued after her claim for the 100 pounds was rejected

Issue: • Can an advertisement be regarded as an offer to the world at large and not merely an inducement to customers to buy their product?

Decision: • Carbolic is liable to pay the 100 pound reward to the plaintiff

Reasons: An offer can be made to the world at large if that is the objectively determined intention of the offeror Carbolic contracts with however many of the recipients actually accept it by using their product, falling sick, and claiming the reward The specificity of their offer and the deposit of money into their account are sufficient evidence of an intention to be contractually bound

An offer can be made to the world at large.

2. Terminology The term offer does not necessarily imply the existence of a legal offer.

The courts will also examine the language used to describe the alleged offer or conduct giving rise to an offer, if the facts are ambiguous as to whether an offer is being made.

3. Limiting the offer If a merchant limits the number of possible acceptors of an offer, the problem of being bound to supply more persons than they have stock disappears Where the number of persons is restricted to a certain number, the courts may be willing to infer an intention to be contractually bound, and thus recognize the existence of a legal offer.

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