Formation of a contract

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Formation of a contract
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A contract is an agreement that is enforceable at
law.
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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.

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OFFER/ACCEPTANCE ANALYSIS

• OFFER
• AGREEMENT
• ACCEPTANCE
• INTENTION
• CONSIDERATION
• CAPACITY

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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

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Rebuttable presumptions

• In social and domestic agreements there is a
  presumption against legal obligations
• Balfour v Balfour 1919 2 KB 571
• Cohen v Cohen (1929) 42 CLR 91
• Jones v Padavatton 1969 1 WLR 328

• The presumption is rebuttable
• Merritt v Merritt 1970 1 WLR 1211
• Wakeling v Ripley (1951) 51 SR (NSW) 183

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Balfour v Balfour

• There are agreements between parties which do
  not result in contracts within the meaning of
  that term in our law. The ordinary example is
  where two parties agree to take a walk together,
  or where there is an offer and acceptance of
  hospitality. Nobody would suggest in ordinary
  circumstances that those agreements result in
  what we know as a contract, and one of the most
  usual forms of agreement which does not
  constitute a contract appear to me to be the
  arrangements which are made between husband and
  wifethey are not contracts because the parties
  did not intend that they should be attended by
  legal consequences.
• Atkin LJ at 578

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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 1925 AC
  445
• Honour clause

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Presumptions

• Ermogenous v Greek Orthodox Community of SA Inc
  (2002) 209 CLR 95
• Use of presumptions of limited value
• Intention to create legal relations is always a
  matter to be proved
• Objective test

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OFFER/ACCEPTANCE ANALYSIS

• OFFER
• AGREEMENT
• ACCEPTANCE
• INTENTION
• CONSIDERATION
• CAPACITY

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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

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Essential features of an offer

• The offeror must intend to be bound by the offer
• Distinguish from request for information or
  invitation to treat
• The offer must be communicated to the offeree
• The offer may be made to one person, a class of
  persons, or the whole world
• The offer must contain enough information
  (certainty) to allow a binding contract to come
  into existence

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Intention to be bound

• 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
• Grainger Son v Gough 1896 AC 325

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Harvey v Facey

• the mere statement of the lowest price at which
  the vendor would sell contains no implied
  contract to sell at the lowest price.
• Lord Morris at 556

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Grainger v Gough

• transmission of such a price list does not
  amount to an offer to supply an unlimited
  quantity of the wine described at the price
  named, so that as soon as an order is given there
  is a binding contract to supply that quantity. If
  it were so, the merchant might find himself
  involved in any number of contractual obligations
  to supply wine of a particular description which
  he would be quite unable to carry out, his stock
  of wine of that description being necessarily
  limited.
• Lord Herschell at 334

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Examples of Invitations to Treat

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

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Carlill v Carbolic Smoke Ball1893 1 QB 256

• Distinguish offer from invitation to treat by
  looking at intention of offeror
• Offer can be made to world at large
• Unilateral contract communication of acceptance
  not required
• Consideration can equal detriment/effort
• Text of ad http//www.carbolicsmokeball.co.uk/

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Communication

• Offer must be communicated to offeree
• overheard offer or unintended communication is
  not an offer
• Banks v Williams (1912) 12 SR (NSW) 382

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Offeree may be a particular person or class of
persons or the whole world

• It is also said that the contract is made with
  all the world that is, with everybody, and that
  you cannot contract with everybody. It is not a
  contract made with all the world. There is the
  fallacy of the argument. It is an offer made to
  all the world and why should not an offer be
  made to all the world which is to ripen into a
  contract with anybody who comes forward and
  performs the condition? It is an offer to become
  liable to anyone who, before it is retracted,
  performs the condition, and although the offer is
  made to the world, the contract is made with that
  limited portion of the public who come forward
  and perform the condition on the faith of the
  advertisement. Bowen LJ at 268, Carlill v
  Carbolic Smoke Ball

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All an offer needs is a yes to make a contract
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Termination of Offers

• Acceptance
• Revocation
• Rejection
• Condition in offer not fulfilled
• Lapse of time
• Death of a party

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Revocation

• Must be communicated
• Prior to acceptance Byrne v Van Tienhoven
  (1880) 5 CPD 344
• Communication can be by third party or conduct
  Dickinson v Dodds (1876) 2 ChD 463
• Not bound by statement to keep offer open for a
  specified time Dickinson v Dodds
• Unless option Goldsborough Mort v Quinn 1910
  10 CLR 674

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Rejection

• Rejection terminates an offer
• Counter offer is a rejection
• Hyde v Wrench (1840) 49 ER 132

• Response is not always counter offer/rejection
• May be clarification or request for information
• Stevenson Jacques Co v McLean (1880) 5 QBD 346

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Stevenson Jacques v McLean

• The form of the telegram is one of inquiry. It
  is not like Hyde v Wrenchwhere the
  negotiation was at an end by the refusal of the
  offerees counter proposal. Here there is no
  counter proposal.There is nothing specific by
  way of offer or rejection, but a mere inquiry,
  which should have been answered and not treated
  as a rejection of the offer.
• Lush J at 350

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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

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Acceptance

• Must respond to the offer
• Must be communicated
• Subject to exceptions - Postal Acceptance Rule
• Must not be conditional

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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 (1927) 40 CLR 227

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R v Clarke

• it is not an absolute proposition of law that
  one who, having the offer before him, acts as one
  would naturally be induced to act, is deemed to
  have acted on the faith of or in reliance upon
  that offer. It is an inference of fact and may be
  excluded by contrary evidence.
• Starke J at 244

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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 1979 1 All ER 965

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Acceptance must be communicated

• Silence is not sufficient
• Felthouse v Bindley (1862) 11 CB(NS) 869

• Conduct may communicate acceptance
• Brogden v Metropolitan Railways (1877) 2 App Cas
  666
• Empirnall Holdings v Machon Paul (1988) 14 NSWLR
  523

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Communication by conduct

• where an offeree with a reasonable opportunity
  to reject the offer of goods or services takes
  the benefit of them under circumstances which
  indicate that they were to be paid for in
  accordance with the offer, it is open to the
  tribunal of fact to hold that the offer was
  accepted according to its terms.
• McHugh JA at 535 in Empirnall Holdings v Machon
  Paull

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Exceptions to communication

• Postal Acceptance Rule
• Lord Herschell said in Henthorn v Fraser 1892 2
  Ch 27 at 33
• Where the circumstances are such that it must
  have been within the contemplation of the parties
  that, according to the ordinary usages of
  mankind, the post might be used as a means of
  communicating the acceptance of an offer, the
  acceptance is complete as soon as it is posted.
• So
• Acceptance complete on posting (constructive vs
  actual communication)
• Within the reasonable contemplation of the
  parties
• Adams v Lindsell (1818) 1 B Ald 681

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Postal acceptance rule will not apply

• Contentious matters - Tallerman Co Pty Ltd v
  Nathans Merchandise (Vic) Pty Ltd (1957) 98 CLR
  93
• If actual notice requested - Bressan v Squires
  1974 2 NSWLR 460

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Wedding cake

• As well, Mavis is being threatened with legal
  action by Chrissie Saranrap. Chrissie was married
  a month ago and was expecting Mavis to provide
  her specialty the nouveau doveau - a tiered
  tower of cupcakes, iced in white and arranged to
  resemble the wings of doves as the centrepiece
  cake for her wedding reception. Mavis loves
  doing cakes for weddings in fact she now makes
  more money from doing wedding cakes than she does
  from her regular cooking classes.

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• Chrissie saw information about Mavis cake
  services after an article in the local paper, and
  called round to see Mavis, and look at the
  different cakes she could make. They discussed
  possibilities and pricing and Chrissie left with
  a price list. Apparently, Chrissie called and
  left Mavis a message on the answering machine
  ordering the nouveau doveau for her wedding, to
  be delivered on 2nd May at the wedding reception,
  for 2,000 COD. In her message, Chrissie had
  said If I dont hear to the contrary, Ill
  assume everything is OK. Call me if there is a
  problem otherwise I will see you on the 2nd.
  Looking forward to your lovely creation.

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• Unfortunately, because of all the work being
  done to the kitchen and problems with electrical
  work and electrical supply, Mavis had experienced
  a number of black outs which had interrupted her
  answering machine. Mavis never received the
  message from Chrissie, and so of course, had not
  provided the cake. Chrissie is very angry and
  claims her wedding was ruined without the cake.
  She has threatened to sue Mavis.