CLAW1001 Chapter Notes - Chapter 6: Aust, Undue Influence, Foxtel
PART 2: GENERAL PRINCIPLES OF BUSINESS LAW
CHAPTER 6: CONTRACTS – CONCEPTS OF AN AGREEMENT
WHAT IS A CONTRACT?
• Contract: an agreement between 2+ legal parties, which the courts will enforce
o Basis of business
o Main means that firms can define and regulate their obligations + expectations w/ firms + customers
• Legislation increasingly affects operation of contracts à implied terms, declaring unlawful or unenforceable,
permitting courts to modify/terminate them
THE NATURE AND ROLE OF CONTRACT LAW:
• Law of contract: mechanism for certainty + predictability on which commerce depends, to prevent + resolve
disputes by reference to boundaries
TYPES OF CONTRACTS:
• Unilateral + bilateral contracts: parties assume obligations
• Simple contract: requires consideration, not necessarily written
• Standard form: written contract prepared by stronger party, little/no negotiation à ‘take it or leave it
• Formal contract (deed): valid b/c written, “signed, sealed and delivered,” no consideration
• Oral contract
• Written contract: e.g. sale of land
• Partly oral partly written contract
• Option
• Tender
AGREEMENT:
• Offer: clear statement of terms on which an offeror is prepared to be contractually bound w/o further negotiation
o Rules relating to the making of an offer:
§ Must be distinguished from invitation to treat e.g. catalogues, ads, display of goods
• Fisher v Bell [1961] à display of goods in window = invitation to treat
• Granger & Sons v Gough [1896] à price list ¹ offer = invitation for people to make offer
• Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953]
o Self-service, acceptance when item is scanned
§ Must be distinguished from a supply of information
• Harvey v Facey [1893] à supply of information of price ¹ offer
§ Can be addressed to any number of people (including world)
• Carlil v Carbolic Smoke Ball Co [1893]
o Flu Epidemic à smoke ball supposed cure/preventative à ad in paper
o C got flu à manufacturers only joking BUT $1000 in bank
o Acceptance didn’t require communication b/c unilateral
o Rules relating to the termination of an offer:
§ Revocation by offeror
• May occur any time before acceptance à effective when communicated to offeree
o Dikinson v Dodds [1876]
§ Offer set to terminate 9am Friday, acceptance sent Friday after house
sold on Thursday à revoked before acceptance
• Must be communicated to the offeree à Byrne v Can Tienhoven (1880)
• Revocation while offeree is in process of acceptance is effective BUT = liable
o Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998)
§ Lapse of time
§ Death of a party
§ Change of circumstances
§ Condition in offer not fulfilled
§ Rejection by offeree
§ Acceptance by offeree
• Acceptance: final + unqualified assent to terms of the offer made in the manner specified by the offeror
o Rules relating to the acceptance:
§ Must be absolute and unqualified à otherwise is a counter-offer
• Hyde v Wrench [1840] à Offer to sell for $1000, counter $950 = terminate original offer
§ Must be made in reliance on offer à cannot be ignorant
• R v Clarke [1927] à Gave info to save himself from being charged w/ murder, reward
not present in thinking
§ Any conditions as to the method of acceptance must be complied with
• Eliason v Henshaw [1819] à sale of flour, request for acceptance through returning
wagon à thought an alternative would reach quicker but not
§ Acceptance only effective when it is communicated to offeror
• Felthouse v Bindley [1862]
o Agreed to buy horse, auctioneer sold horse à lost rights to horse
o Decision: silence didn’t constitute acceptance
§ Exceptions: offeror waives communication requirement, postal acceptance = at time of posting
o CASE STUDY: Sprod bnf v Public Relations Oriented Security Pty Ltd [2007]
§ S assaulted at Pizza store by security guards à was intoxicated and aggressive
§ Security removed S, took him to an alley à whether employer was vicariously liable
§ Decision: guards acting within scope of employment (modes of action authorised by employer)
INTENTION TO CREATE LEGAL RELATIONS:
• Distinguish b/w business and social agreements:
o Business: intended to create legally enforceable agreement
o Social (or family): did not intend to create legally enforceable relations
• Balfour v Balfour [1919]
o Married couple à he would pay her $30 per month until she returned to Sri Lanka à stopped paying
o She sued à no intention that agreement would be legally enforceable
• Jones v Vernon Pools Ltd [1938]
o Honour clause à arrangement not intended to be a contract, an agreement in honour only = no intention
to create legal relations
CONSIDERATION:
• Consideration: price paid by one party in exchange for other’s promise à something more than obligated to do
o Benefit to the promisor
o Detriment to the promisee incurred at the promisor’s request
• Rules:
o Can be an act, promise or forbearance (promise not to do something)
o Must move from promise
o Must not be past à unless act done at request of promisor
§ Roscorla v Thomas [1842]
• Bought horse, then wanted assurance it was sound à later found vicious = sued
• Assurance wasn’t part of contract
o Must be sufficient (have some value) à can’t be illusory, doesn’t need to be adequate
§ Chappell & Co v Nestlé Co Ltd [1960]
• C owns copyright of song
• N offers a record of the song in exchange for 1 shilling and sixpence + 3 wrappers
• Wrappers = consideration = had value à N must pay royalties including their value
§ White v Bluett [1853]
• Son promised father to “stop complaining” as consideration for forgiveness of debt
• Held: son’s promise was not consideration b/c too vague
o Cannot be a public duty which must otherwise be performed
§ Glasbrook Bros Ltd v Glamorgan County Council [1925]
• Police performed beyond public duty (constant surveillance), therefore sufficient
consideration
o Consideration cannot be performance of existing contractual duty
§ Stilk v Myrick [1809] à promised to share wage of deserters if crew sailed home, already agreed
o Cannot be part of payment of an existing debt
§ Pinnel’s Case à full payment required
• Promissory estoppel: promise is enforceable by law, even if made without consideration, when a promisor has
made a promise to a promisee who relies on it to his detriment
o Stops a party enforcing their contractual rights (of revocation) if unconscionable
o Elements:
§ Promisee reasonably assumed a legal relationship existed / would exist between parties
§ Promisor induced assumption, or aware promisee had made it remained silent
§ Reasonable reliance on assumption
§ Promisee will suffer a detriment if promisor is permitted to renege
§ Assumption may be one of fact or law
o Central London Property Trust Ltd v High Trees House Ltd [1947]
§ Block of flats rented to H, sub-leased to tenants à during war rent was halved à assumed
would increase when war ended = CLP wanted to regain lost rent
§ Decision: CLP estopped from going back on promise to accept lower rent
DEFECTS IN THE CONTRACT:
• Courts will refuse to enforce contract in certain circumstances:
o Contractual capacity:
§ Minors: bound if understand / necessaries
§ Corporations: act through agents with actual or apparent authority – absence of authority may
result in contract being of no effect
§ Incapacitated persons:
• Mentally impaired à contract avoided if other party was / should have been aware
• Intoxicated
• Bankrupts à bankruptcy must be disclosed when contracting
o Legality:
§ Illegal or void by statute
• Re Mahmoud & Ispahani [1921]
o Illegal to deal in linseed oil unless licensed à buyer didn’t have license =
refused delivery of product = seller sued
o Law prohibited contract being formed = could not sue
• Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978]
o Activity illegal BUT contracts made during illegal activity were enforceable
§ Illegal because contrary to public policy at common law
• Furtherance of crime = illegal
• Sexual immorality = illegal
• Oust court jurisdiction = void
• Unreasonable restraints of trade = void
• Void contracts: no one can acquire any rights under it à contract doesn’t exist = neither can recover damages
o 3rd party impacted by void contract has no rights or protections
• Voidable contracts: valid BUT one party has right to rescind or not perform
o Terminate: end after part performance
o Rescind: restore parties to position before contract à lost if 3rd party affected
• Unenforceable: valid, one or both parties cannot be sued in court for breaching it
CONSENT:
• Factors affecting consent:
o Non est factum
o Mistake
o Misrepresentation
o Unconscionable conduct
o Undue influence
o Duress
MISREPRESENTATION INDUCING THE CONTRACT:
• A false statement of fact, made by a representor to a representee during negotiations, which induces them to
enter the contract = voidable à s 18 ACL = “misleading and deceptive conduct”
• Types of misrepresentation:
o Innocent: made by a person who believed it to be true
o Negligent: made innocently but without reasonable care as to its truth or falsity
o Fraudulent: made by a person who had no honest belief in its truth
o Statutory: misleading or deceptive conduct
• Rescission: where misrepresentation induced a party to enter a contract, it is voidable + representee can rescind it
o Right lost when:
§ With full knowledge of truth, representee continues with contract
§ Not possible to restore parties to position at time of entering contract
§ 3rd party has acquired, in good faith, an interest
§ Contract induced by non-fraudulent misrepresentation + fully executed
§ Long delay
• Leaf v International Galleries [1950]
o L bought painting à 5 years later tried to sell = fake = sought rescission
o Need to act promptly to seek rescission
• Bisset v Wilkinson [1927]
o Sale of land à vendor stated could carry 2000 sheep à untrue = purchaser tried to rescind contract
o Decision: couldn’t be rescinded b/c statement was an opinion that shouldn’t have been relied on
MISTAKE:
• Common mistake: both parties make same mistake = void
o Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2003]
§ Ship suffered structural damage à arrangement with TGP (hiring + cancellation fee)
§ GPS aware of distance à didn’t cancel for many hours = TGP sought $$
§ Decision: distance wasn’t too great that TGP couldn’t be of use = liable
Document Summary
Chapter 6: contracts concepts of an agreement. Contract: an agreement between 2+ legal parties, which the courts will enforce: basis of business, main means that firms can define and regulate their obligations + expectations w/ firms + customers. Legislation increasingly affects operation of contracts implied terms, declaring unlawful or unenforceable, permitting courts to modify/terminate them. Law of contract: mechanism for certainty + predictability on which commerce depends, to prevent + resolve disputes by reference to boundaries. Types of contracts: unilateral + bilateral contracts: parties assume obligations. Standard form: written contract prepared by stronger party, little/no negotiation take it or leave it. Formal contract (deed): valid b/c written, signed, sealed and delivered, no consideration: oral contract, written contract: e. g. sale of land. Tender: offer: clear statement of terms on which an offeror is prepared to be contractually bound w/o further negotiation, rules relating to the making of an offer:
