Contract A, the facts and the rules.docx

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Business Research
Jennifer Paneth

INTRODUCTION TO CONTRACT LAW OFFER Gibson v Manchester City Council [1979] 1 WLR 294 Gibson fills out a form to buy property off the Council. He submits the form. A new council is elected which refuses to sell the house. It was held that the words „maybe be prepared to sell,‟ and „if you would like to make a formal application to buy…‟ in the Council‟s letter prevent the letter from being taken as an offer. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 CSB Co posts an ad stating that a £100 reward will be payed to anyone who contracts the flu or a cold whilst using the carbolic smoke ball, and that £1000 is deposited with a bank „to show our sincerity.‟ Carlil uses the ball and contracts the flu. It was held that the ad contained an express offer to pay the award. It was not a „mere puff‟ because money was deposited „shewing our sincerity.‟ Carlil accepted the offer by performing the act (unilateral). The offer was open to anyone who contracted the flu within a reasonable time after contracting the flu. MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125 Can a ticket produced by MacRobertson be construed as an „agreement or memorandum of agreement‟ for taxation purposes? Are terms on the ticket binding? Held that the issue of the ticket by MacRobertson constitutes an offer by the airline. The passenger may accept this offer after they have been given a reasonable opportunity to read the conditions. The airline is not in contractual relations with the passenger until they are provided a seat on the plane. There is no promise by the airline to carry the passenger until this point. OFFERS DISTINGUISHED FROM INVITATIONS TO TREAT Shop sales Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 Boots runs a chain of self-serve pharmacies. A pharmacist always supervised the cashier. The Poisons Act required the sale of certain medicines to be supervised by a registered pharmacist, which PSGB alleged Boots was not doing. It was held that goods on display were no more than an invitation for customers to choose what they decided. The customer offers to buy the item by presenting them at the register. The shopkeeper can then choose to accept this. If customers were bound as soon as they chose an item (as PSGB thought) they would have no right to replace the item for a similar, more desirable, one. Auctions AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 AGC puts land up for auction. The highest bid does not meet the reserve. AGC permits the auctioneer to withdraw the reserve. A bid lower than McWhirter‟s is accepted. He sues. It was held that there is no need to distinguish between a sale with or without a reserve. The auction remains an invitation to treat. Every bid is no more than an offer, which is not binding unless assented to. The auctioneer can accept any of the offers he is instructed to. Tenders Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1 AC 207 Harvela, the Trust and Sir Leonard owned shares in a company. The Trust offers to sell its shares by way of tender. Harvela makes a fixed bid. Sir Leonard makes a bed referencing Harvela’s: his bid would be x amount higher than Harvela‟s. It was held that a referential bid cannot be made, because if it could a person bidding a fix price could never win. The Trust could not accept the referential bid, nor could Sir Leonard Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 Airservices invites Hughes and another company, Thompson, to enter a tender process for an advanced air traffic system. Airservices sets out the selection criteria to both parties. Airservices accepts Thompson‟s offer and not Hughes’ without evaluating the offers with reference to the selection criteria. It was Held that the letter that set out the criteria was not a mere invitation to treat, and upon signing it the parties were bound by its stipulated process. Upon lodging its (Hughes) final offer, the terms in the letter received contractual force. TERMINATION OF AN OFFER Revocation 2 Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 Goldsbrough Mort pays 5 shillings to Quinn for him to keep an offer for the purchase of land open for a week. Before the end of the week Quinn repudiates that offer. Nevertheless, Goldsborough Mort accepted the offer within the week. Quinn denied the existence of an enforceable contract. It was held that „a promise to keep an offer open for a specified period is not binding (so that the offer can still be revoked at any time) unless the promise is made in a deed or is supported by consideration. Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 Mobil offers extended tenure to Wellcome (franchisees) if they achieve a score of 90% in judging over the next 6 years. Offer was accepted by signing a tear of slip. Later, Mobil announced it would not be granting tenure as part of the plan. It was held that because the offer because the proposal was too vague to give to a contractual obligation. But, if they were wrong, there is no universal proposition that the offeror is not at liberty to revoke it after the offeree has embarked upon the sought means of acceptance. Further, the offer could be revoked because the offer actually benefitted the franchisees too. Lapse and death of offeror Fong v Cilli (1968) 11 FLR 495 A contract is drawn up for Mr Goon (Fong) to transfer land to the Cilli. Luigi Cilli is informed of Fong‟s death. The contract is forwarded to Luigi for signing. It was held that an offer cannot be accepted if the offeree is aware of the offeror‟s death at the time the offer is accepted. Since Luigi executed the agreement, and was aware of Mr Goon’s (the land owner‟s) death, a contract was never formed. Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 Laybutt owns a piece of land that he offers to Amoco. Before he sells it he dies, leaving his wife as the sole executor of his state. Amoco accepts the offer and serves it on Laybutt‟s widow. It was held that upon death, any contractual responsibilities pass on to personal representatives. This does not apply if the contract depends on the personal skills or judgment of the deceased. Thus, there is no reason for which the option to buy could not be exercised by Amoco. Failure of condition and changed circumstances 3 Dysart Timbers Ltd v Neilson [2009] NZSC 43; [2009] 3 NZLR 160 (NEW ZEALAND) Before appeal, Neilson offers to settle out of court after being sued by Dysart, who accepts. The Supreme Court accepts the appeal. Nielson‟s lawyers withdraw the offer, arguing that it was implied in the offer that the leave for appeal application would be withdrawn before the Supreme Court made a decision. It was held that an offer automatically lapses if there is a fundamental change in circumstances before the offer is accepted. But, the leave for appeal was not a fundamental change and the appeal was dismissed. Rejection and counter-offer Stevenson, Jaques & Co v McLean (1880) LR 5 QBD 346 Defendant offers Plaintiff steel at a price. Plaintiff sends a telegram asking if the Defendant will accept „forty for delivery over two months, or if not the longest you will allow.‟ Defendant doesn‟t respond. Later, Plaintiff accepts the first offer, but the Defendant sells steel to another. It was held that the Plaintiff‟s question was not a rejection or counter offer, but a „mere enquiry.‟ The rejection was not effective until it reached the plaintiffs, even though the Defendant was at liberty to revoke the offer until Monday. WEEK TWO ACCEPTANCE CONDUCT CONSTITUTING AN ACCEPTANCE Smith v Hughes (1871) LR 6 QB 597 Smith owns oats. Hughes inspects the oats and offers to buy them. The oats were delivered, but Hughes was not happy with them, as they were new oats, whereas he thought the agreement was for old oats and refused to take them. It was held that, whatever a man‟s subjective intentions may be, if he conducts himself in such a way that the other party believes that he is assenting to the party‟s proposed terms, and upon that belief the party enters into the contract, the man conducting himself is bound by those terms regardless of his subjective beliefs. Taylor v Johnson (1983) 151 CLR 422 Ms Johnson enters into a contract with the Taylor children to sell her lots 4 of land at a price of $15000 overall. Ms Johnson thought she was selling her land for $15000 per lot, and thus refused to sell her land. Taylor sued for specific performance. It was held that the objective theory of contract law (manifestation of intention rather than actual intention) is „in command of the field.‟ However, the subjective theory was applied here, as a person who makes a serious mistake as to the content of a contract may be entitled in equity if the other party knows that the person is entering into the contract under a mistake, and, that party makes no effort to make the other party aware that they are entering into the contract under a mistake. Fitness First (Australia) Pty Ltd v Chong [2008] NSWSC 800 Ms Chong joins up with Fitness First on certain terms, and does not read her contract before signing it. The contract contains a term stipulating that she pays a $200 cancellation if she terminates within the first 12 months. She cancels her contract and refuses to pay the fee arguing she was not aware of it. It was held that a valid contract does not require both parties to be ad idem, or of one mind. The general rule in this case is that a party assents to all the terms of a contract it signs. CONSCIOUSNESS OF THE OFFER The Crown v Clarke (1927) 40 CLR 227 Clarke sees a proclamation that „£1000 [will be payed] for… information as to a murder.‟ He is charged with that murder, and makes a statement leading to the arrest and conviction of the actual murderer. WA Gvt refuses to pay the reward. It was held that „acceptance and performance of condition… involve that the person accepting and performing must act on the offer. Clarke did not act on the faith of, or in reliance upon the proclamation, and thus was not entitled to the reward. SILENCE AND ACCEPTANCE INFERRED FROM CONDUCT Felthouse v Bindley (1862) 11 CBNS 869; 142 ER 1037 Plaintiff writes to Defendant that he wishes to buy his horse, adding „if I hear no more I consider the horse mine.‟ The Defendant had directed his auctioneer not to sell his horse, but it was sold anyway, meaning the Plaintiff could no longer purchase it. The plaintiff sues the auctioneer. It was held that the Plaintiff had no right to impose the sale of the horse upon his nephew with the condition that he must reply to repudiate the offer. Whilst the nephew intended to sell his horse to his uncle, he had not communicated it to his uncle, or done anything to bind himself. So, no 5 contract was formed. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Mr Jury has a majority shareholding in Empirnall. Machon Paull undertakes works for Empirnall. They send Mr Jury a contract, but are told that he „does not sign contracts.‟ Progress payments were made. Later, Machon Paull wrote to Mr Jury and said „we are continuing on the stance that the conditions of the contract are accepted.‟ It was held that the silence of the offeree may indicate they have assented to the terms where an offeree has been given a reasonable opportunity to reject the terms, and takes the benefit from those terms under circumstances which indicate the other party would be payed. Brambles Holdings v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Brambles manages Bathurst‟s waste disposal. After the first contract expired, and a new one was drawn up, Bathurst wrote to Brambles to increase liquid waste desposal fees; additional income would be placed in a fund. Brambles disagrees, but charges the stipulated rates anyway. Bathurst claims it is entitled to the increased fees. It was held that, for a variety of reasons (Ipp J: initial rejection of letter was „part of the posturing of negotiation.‟ And (Heydon JA) Brambles taking the benefit of the increased fees etc.) that the normal analysis of offer an acceptance must not be applied in every case: sometimes it is relevant to ask whether an agreement can be inferred by the conduct of the parties. COMMUNICATION OF ACCEPTANCE General rule Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79 Knight filled out and returned a hire-purchase agreement with Latec, who processed the agreement, noting they had „accepted‟ without communicating it to Knight. Knight returns the goods, having not made any payments, due to a defect. Latec sue. It was held that acceptance must always be communicated. Acceptance can be communicated other ways, but „very clear language is needed for a document of such construction.‟ Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 Brinkibon (London) accepts an offer for the purchase of steel bars by Stahag Stahl (Vienna). Brinkibon accepts from London via telex (fax). Brinkibon were to sue Stahag for a breach of contract, but it was first 6 ascertained whether the contract was formed in Vienna or London. It was held that, if it is necessary to determine where a contract was formed, acceptance occurs at the place where the acceptance is communicated to the offeror. With instantaneous communications, the general rule is that acceptance is made when and where the acceptance is received. Postal acceptance rule Adams v Lindsell (1818) 1 B & Ald 681; 106 ER 250 A defendant makes an offer to the plaintiff through post. The letter of acceptance is received two days later than what had been expected, so the defendant had already sold its wool when the letter was received. It was held that an offer is accepted where and when the letter has been posted. Electronic communications Electronic Transactions (Victoria) Act 2000 (Vic) ss 3(1), 13A S3: a) covers data and images (ie. emails, texts) b) covers sound (ie. phone calls) S13: if electronic address is designated by the addressee- the time the communication becomes capable to being retrieved by the addressee If no electronic address is designated, the time when the communication is capable to being retrieved, and, the addressee becomes aware that the communication has been sent to that address. Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce (1996) CORRESPONDENCE BETWEEN OFFER AND ACCEPTANCE Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401 Butler and Ex-Cell-O negotiate the sale of machinery. The Seller‟s quote contains a price variation clause. The Supplier replies „please supply terms and conditions as below‟ without including a price variation clause. Seller supplies on the basis of the price variation clause and attempts to increase the price. It was held that the traditional approach may be applied in this sort of case, but applying a „battle of the forms‟ approach yields the same outcome- in most cases the battle is won by the person who fires the last shot (provides the last accepted set of terms), but, in some cases, the battle depends on the shots fired by both sides (where the terms are reconciled producing a harmonious result), but in this case the battle was won by whoever gets (or got) in first: from this, it was clear 7 that contract was on the buyer‟s terms. WEEK THREE CONSIDERATION E Jenks, The History of the Doctrine of Consideration in English Law (Cambridge University Press, London, 1892), pages 81-82 THE ESSENTIAL ELEMENTS The benefit/ detriment requirement The “bargain” requirement Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 Commonwealth announces it will pay a subsidy for the purchase of wool. Australian Woollen Mills (AWM) purchases large quantities of wool in pursuit of the subsidy. Commonwealth denies AWM its full subsidy, which AWM sues to recover. It was held that for consideration there must be a relation of quid pro quo or „this for that‟. Since the Commonwealth had never promised the subsidy in return for the purchase of wool, and only announced it as policy, there was no such relation. Beaton v McDivitt (1987) 13 NSWLR 162 McDivitt becomes concerned that he will not be able to pay rates on his land, so he divides it up and allows the Beatons to live there rent free (so long as they engaged in permaculture) on the understanding that the title would be transferred after some time. Eventually, the relationship sours and the Beatons are ordered off the land. It was held that in this case there was no consideration moving from Beaton to McDivett because the promises Beaton made cannot be classified as quid pro quo for a transfer of title. In some cases consideration will be so illusory or one-sided that quid pro quo will not be found. Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (receivers and managers appointed) (in liq) [2009] VSCA 238; (2009) 25 VR 411 Atco (parent) loans money to its subsidiary, Newtronics. Due to financial difficulties, Atco agrees not to call for its loans to be payed so long as Newtronics continues to trade. Later, Atco demands payment of its loans by Newtronics. 8 It was held that for a quid pro quo to exist in this context Newtronics must show that Atco made a request for it to continue its trading in return for the undertaking of continued support and that Newtronics was moved by this request. The evidence could not support such a conclusion, and thus there was no „this for that.‟ A request/exchange must be made. ADEQUACY OF CONSIDERATION Woolworths Ltd v Kelly (1991) 22 NSWLR 189 Here, Kirby P sets out the reasons for why the law has declined to consider the adequacy of consideration in ascertaining a bargain: People put different weight on different things Judges are not qualified to give opinions on the value of things A requirement of adequacy would open a ‘vast territory of evidence’ causing uncertainty People should be able to make their own deals There is already legislation and equitable safeguards against vitiating factors. SUFFICIENCY OF CONSIDERATION Past consideration General rule Roscorla v Thomas (1842) 3 QB 234; 114 ER 496 Thomas delivers a horse and is payed by Rascorla. Later, Thomas promises that the horse is „sound and free of vice.‟ The horse becomes vicious, so Rascorla sues. It was held that as a general rule, the promisor‟s promise must be coextensive with the promisee‟s consideration. Past consideration will not support a future promise. Promise to pay for past services performed at the request of the promisor Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239 Hosking helps Ipex in the transfer of his computer company to their name under the belief that he would receive a shareholding in the restructured company. After the transfer was finalised, an agreement was written up entitling Hosking to a share in the re-structured group. It was held that Hosking‟s consideration was not past, but executed, thus he was entitled to a company share. Lampleigh v Brathwait (1616) Hob 105; 80 ER 255 Braithwait had murdered a person. He requested that Lampleigh join 9 him on a journey to receive a pardon from the king. The journey ended up becoming long and expensive. Upon their return, Braithwait promised to pay Lampleigh an amount. It was held that where A makes a request to B that he performs services, and B performs the services requested of him, and A then promises to pay B for those services, B‟s performance of those services is good consideration for A‟s promise. Existing legal duty Stilk v Myrick (1809) 2 Camp 317 A boat captain promises his seamen the wages of two deserters if they continue working the ship back to London. Upon returning, he decides not to pay the extra wages. It was held that continuing to work the boat could not be viewed as consideration since the seamen were under an existing legal duty to carry the boat back to London. Foakes v Beer (1884) 9 App Cas 605 Foakes owes Beer a judgment debt. He agrees to pay it in increments. Beer then sued for the interest on the judgment debt calculated from when it was initially meant to be payed. It was held that payment of a lesser sum, in satisfaction of a greater sum cannot be any satisfaction for the whole, as Beer was under an existing legal duty to pay the full amount. Hartley v Ponsonby (1857) 7 El & Bl 872 FRESH CONSIDERATION A ship captain had agreed to pay a crewmember a greater amount for sailing in worse, more dangerous conditions. It was held that since the danger was not stipulated in the original terms of employment, the extra pay could be considered fresh consideration. Thus, the extra wages were to be payed. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 PRACTICAL BENEFIT The Roffey Brothers, having contracted with Williams to build apartments, find himself unable to complete the work. After this concern is raised, Williams agrees to pay the Roffey Brothers an amount if they complete as many apartments at possible. It was held that if A enters into a contract with B to do work for B in return for payment by B and at some stage before A finishes B has reason to doubt whether A will be able to finish, then B promises A additional payment to finish on time, and as a result B obtains in practice a benefit, or obviates a disbenefit, and B‟s promise is not given as a result of duress or fraud, then the benefit to B is capable of being consideration for 10 B‟s promise. Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 PRACTICAL BENEFIT Musumeci rents a fruit store from Winadell. Musumeci‟s profit margins decrease, so it is granted a lower rent payment. It was held that Williams v Roffey Brothers should be followed with a recasting: it being that „before A finishes his obligations under the contract B has reason to doubt whether A will be able to complete his obligations, so B promises extra payment or another concession to A and as a result B obtains a practical benefit, A suffers a detriment, or obviates a disbenefit and this is worth more than any remedy against the beneficiary… then the benefit to B or detriment to A is good consideration for B‟s promise.‟ Re Selectmove Ltd [1995] 1 WLR 474 ????? Pao On v Lau Yiu Long [1980] AC 614 PROMISE IS MADE TO A THIRD PARTY Pao On owns Shing On. Pao On agrees to sell Shing On to Fu Chip. Lau Yiu Long is Fu Chip‟s major share holder. Pao On enters into an agreement with Fu Chip not to sell 60% of its shares before a specified time. Pao On then entered into a subsidiary agreement with Lau Yiu Long to sell 60% his shares to Lau at an agreed price. Pao On realised this agreement was poorly drafted, and refused to continue with the first agreement unless it (the subsidiary agreement) was redrafted. A new subsidiary agreement was formed indemnifying and guaranteeing Lau from a fall in share price. By the next year share prices had dropped substantially. Lau, with threat of being sued, argued that no consideration had passed for the subsidiary agreement; the parties were already bound to the terms of the main agreement. It was held that the real consideration given by Pao On in return for the indemnity was the promise to perform their pre-existing contractual obligations to Fu Chip. A pre-existing contractual obligation to a third party can be good consideration because the promisee obtains the benefit of direct obligation, that is, if Pao On breached the main agreement with Fu Chip, Lau Yiu Long would be allowed to Pao On for the breach, whereas ordinarily he‟d only be able to sue Fu Chip Wigan v Edwards (1973) 1 ALR 497 BONA FIDE COMPROMISE OF A GENUINE LEGAL DISPUTE Edwards purchased a house from Wigan. The house was defective, and Edwards said that he would not finalise the contract unless the defects were attended to. Under pressure, Wigan compromised to remedy the major defects within a week of purchase, and to rectify any other defects 11 within 5 years. He did not carry out this promise. It was held that if one party honestly and legitimately believes they are excused from a contractual duty, then the performance of that contractual duty is good consideration for a subsequent promise by the other party. Here, whilst the Edwards were wrong in the belief that they did not have to complete the purchase, it is what they honestly believed, and thus Wigan was bound by his promise. cf. Ballantyne v Phillott (1961) 105 CLR 379 It was held that there was no genuine foundation for Ms Ballantyne‟s claim that Phillott had defamed her, and thus neither party was bound to the terms of their compromise that Phillott would discontinue his claim against Ballantyne for unreturned loans, and that Ballantyne would admit she had no right of claim against Phillott in defamation. WEEK FOUR INTENTION TO CREATE LEGAL RELATIONS THE OBJECTIVE APPROACH Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46 Shahid wants to join the College of Dermatologist. She applied multiple times, her application providing a right of appeal upon payment of a substantial fee. Her appeal was quashed three times. She sued, arguing that the appeal process created a contract whose terms must be followed, and that the appeal process, by not being genuine and effective, breached this contract. It was held that the parties‟ uncommunicated intentions should not be considered. The parties did intend to enter legal relations having regard to the comprehensive appeal process, the time and effort involved in the application and the payment of a substantial sum. “Where one party makes, and another party accepts, a money payment as consideration for a promise by the other to provide some service or to bestow some benefit, the proposition that each intended the promise to be binding and to carry the normal legal consequences does seem rather obvious.‟ Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (receivers and managers appointed) (in liq) [2009] VSCA 238; (2009) 25 VR 411 Same facts as above. Although it is customary to conceive of intention to create legal relations 12 as a contractual requirement separate and distinct from the need for consideration, the better view may be that the rules as to consideration supply the answer as to whether parties intend to enter into a legally binding bargain. Even so, in some cases consideration and the intention to create legal relations can be distinct; as where, for example, although application of the rules as to consideration as such suggest the formation of legally binding agreement, the parties have otherwise expressly or impliedly signified that they do not intend their arrangement to be legally binding. In such cases, the existence of background circumstances, such as that a dealing is between members of the same family, or between corporations within the same corporate group, when taken into account in conjunction with the ordinary rules as to consideration, may yield a different result to the application of the rules of consideration simpliciter. PRESUMPTIONS Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 Ermogenous is employed by the GOCSA as Archbishop. He is payed by GOCSA, and upon resigning sues for unpaid annual and long service leave. GOCSA had argued that their was no intention to create legal relations between the parties due to the relationship‟s spiritual character. It was held that there is no presumption that contracts between religions or associated bodies and ministers of religion, by their nature, are not legally binding. The word „intention‟ describes what would objectively be conveyed by what was said or done having regard to the circumstances in which those things happened. It is not a search for the uncommunicated intentions of the parties. COMMERCIAL TRANSACTIONS Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 ANI is the parent company of Spedley. Spedley and BBLSA enter into a loan agreement of a substantial sum, only after ANI provides a strongly worded „letter of comfort‟ asserting that it would not reduce its shareholding in Spedley, it would give BBLSA 90 days notice if it wished to do so, and, that it would ensure that Spedley is in a position to meet its debts. Spedley was unable to repay, so BBLSA sued ANI arguing that the letter of comfort amounted to a contractual document. As a starting point there was a prima facie presumption that in commercial transactions there is an intention to create legal relations. It was held that, if the statements made in letters of comfort are appropriately promissory in character, court should enforce them when 13 they are uttered in the course of business and there is no clear indication that they are not intended to be legally binding. cf. Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379 Kleinwort agrees to loan MMC‟s subsidiary a loan facility after MMC provides two letters of comfort stating „It is our policy to ensure [our subsidiary] is at all times in a position to meet its liabilities to you under the loan faculty.‟ The tin market crashed and Kleinwort sued on the letter of comfort. It was held that the letters of comfort had no legal effect, amounting to only a statement of the company‟s intention at the time, creating only a moral responsibility to repay the loans. DOMESTIC AND SOCIAL AGREEMENTS Ashton v Pratt (No 2) [2012] NSWSC 3 Pratt agrees with Ashton to pay a substantial financial award if Ashton becomes his mistress. Pratt dies and Ashton sues for the unpaid award. It was held that even though there was an agreement, there was no intention for it to create legal relations because: The context was social, it was to establish the relationship as „mistress,‟ the parties did not seek legal advice and the parties did not record this agreement. Todd v Nicol [1957] SASR 72 A widowed Ms Nicol invites her sister-in-law Todd to Australia to live with her. In reliance upon a promise that, upon her death, the Nicol house would belong to her, Todd sells all her stuff. The relationship sours and Nicol asks the Todds to leave. It was held that an intention to create legal relations might be implied into an agreement where the intention is not express. Since it is significant for a person to sell everything, quit their job and move overseas for a promise, the intention could be implied. GOVERNMENT AGREEMENTS Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6 The Administration leases land to Leahy. It becomes the Administration‟s policy that it should engage in tic eradication. Leahy and the Administration agree that it should take over the spraying of Leahy‟s property. Some cows die and Leahy sues. It was held that the Administration had no intention to create legal relations with Leahy because it was merely performing a government function and simply pursuing a policy of tic eradication. The arrangement was of a more administrative nature than contractual. 14 cf. Placer Developments Ltd v Commonwealth (1969) 121 CLR 353 Commonwealth and Placer enter an agreement whereby placer would start a timber company importing from New Guinea to Australia, and the Commonwealth would, in return, pay a subsidy. This agreement received parliamentary approval. The Commonwealth did not pay the subsidy in accordance with the appropriate clause. It was held that both parties intended the contract to create legal relations as it was approved by the parliament, it was of a commercial nature, and the language of the agreement pointed to an intention, PRELIMINARY AGREEMENTS Masters v Cameron (1954) 91 CLR 353 Masters and Cameron enter into an agreement for the transfer of property which said „this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions.‟ The Masters refused to go through with the sale. It was held that an agreement on which the parties have negotiated terms of a contractual nature that exists alongside an agreement that it shall be dealt with by a „formal contract‟ may fall into three categories. In the first of these the parties have finalised all the terms and intend to be immediately bound to those terms, but at the same time propose to have the terms restated fully in a formal document. In the second the parties have completely agreed on all terms and do not intend to vary those terms but still have made the performance of one or more of those terms conditional upon the execution of a formal contract. The third, the parties do not intend to make any legally binding agreement unless and until they execute a formal agreement. This case was of the third category. The expression „subject to preparation of a formal contract‟ and particularly as the signed document would contain any documents the solicitor thought necessary indicated that the parties had established no more than a basis for future agreement. Baulkham Hill Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 In this case a fourth category was put forward, namely „one in which the parties were content to be bound immediately and exclusively by the terms they had agreed on whilst expecting to make a further contract in substitution for the first containing, by consent, additional terms. WEEK FIVE 15 CERTAINTY COMPLETENESS Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460 Facts irrelevant. Per HCA: „[N]o contract is concluded until all the parties negotiating are agreed upon all the terms of their bargain- unless indeed the terms left outstanding are such as the law will supply.‟ ANZ v Frost Holdings Pty Ltd [1989] VR 695 ANZ contracts with Frost for the design and supply of 50,000 calendars. Nothing was agreed on as to their price, size, style and the format of the calendar. ANZ decides not to complete the deal and Frost sues. It was held that „it is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least the essential or critical terms have been agreed upon. So there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement.‟ Since nothing had been agreed on as to the format, size, style of the calendars, even though the Goods Act 1958 (Vic) (if parties have agreed upon all essential terms) allows the implication of a „reasonable price,‟ no contract was formed. Foley v Classique Coaches Ltd [1934] 2 KB 1 Foley agrees to sell a piece of land to Classique on the condition that Classique enter into a second agreement with him whereby Foley would sell petrol to Classique at price decided „from time to time‟ and Classique would not purchase petrol from anyone else. This contract survived three years before Classique decided to by petrol from elsewhere. It was held that a term stipulating a „reasonable price‟ could be implied into the contract in the circumstances since the parties believed they were part of a contract for three years, and the contract provided an arbitration clause which could apply to the price of petrol. CERTAINTY Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Council sells electricity to ACF. Cl 5 of the agreement allows the Council to vary supplier‟s costs (maximum demand charge and maximum energy charge) in other respects not specified in the agreement, so long as ACF is given 14 days notice in writing. It was held that cl 5 was not void for uncertainty. So long as the wording of the agreement is not so „obscure and so incapable of definite meaning 16 that the court is unable to attribute to the parties any contractual intention‟ the contract cannot be held meaningless. Furthermore, no narrow or pedantic approach is warranted in attributing this meaning. And, per Kitto J, the „supplier‟s costs‟ are ascertainable through the application of „normal business principles.‟ Implying objective standards Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Dr Pace was employed by Biotechnology under a contract that would give him the option to participate in the company‟s equity sharing program. Pace was aware that such a scheme did not exist at the time of agreement. He sued the company after they failed to properly provide this option. It was held that the fulfilment of this scheme depended on the decision of one party: there was no external standard to affix an appropriate or reasonable equity sharing scheme because „there mere existence of other equity sharing schemes in other companies with different scientists provides no such reference point.‟ And thus the scheme was void for uncertainty because it left too many decisions to be made by the court to give it content.‟ Whitlock v Brew (1968) 118 CLR 445 Hall v Busst (1960) 104 CLR 206 Hall purchased land and chattels off Busst in an agreement that would enable Busst to repurchase the land if Hall wished to resell. If Hall exercised this option he would pay a price „which shall be added to the value of all additions and improvements to the property… and subtracted from its deficiencies.‟ Hall sold without giving notice to Busst, who subsequently sued. It was held that the words „the value of all additions and improvements‟ was too uncertain because there was no external standard to which the value of these things could be ascertained. It is even more difficult to ascertain a price to „cover the depreciation in the value of all buildings‟ by reference to an external standard. Agreements to negotiate United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618 An agreement to “meet and undertake genuine and good faith negotiations with a view of resolving” was upheld with the view that these „are not empty obligations.‟ 17 ILLUSORY PROMISES Meehan v Jones (1982) 149 CLR 571 Jones agreed to sell an oil refinery to Meehan at a price. The contract contained a special condition by which Meehan would obtain „finance on satisfactory terms and conditions in an amount sufficient to complete the purchase.‟ Meehan had done everything necessary under the contract but for the above, and informed Jones, but Jones had agreed to sell the refinery to another, arguing that the above provision was too uncertain. It was held that a “subject to finance” or “subject to finance on satisfactory terms and conditions” clause denotes finance which is satisfactory to the purchaser is not to say that he has an absolute or unfettered right to decide what is satisfactory. Since all else had been done, the contract was enforceable. Godecke v Kirwan (1973) 129 CLR 629 Godecke (purchaser) and Kirwan sign an agreement where, if required, the vendor/I/we will prepare a formal agreement containing „the forgoing and such other covenants and conditions as they may reasonably be required.‟ Kirwan refused to proceed. It was held that the terms were not illusory because the new „covenants and conditions‟ were limited to those consistent with the terms of the offer. Further, the standard of reasonableness, which could be determined objectively, prevented the conference of an unfettered discretion on the solicitors. Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 Placer and The Commonwealth entered into an agreement whereby Placer would provide timber products from New Guinea, and the Commonwealth would pay a subsidy determined by it „from time to time but at an amount… not exceed[ing] the amount of customs duty paid and not remitted.‟ It was held that “wherever words which by themselves constitute a promise are accompanied by words showing that the promiser is to have a discretion or option as to whether he will carry out that which her purports to be the promise, the results will be that there is no contract upon which an action can be brought at all.‟ Since no objective standard could be implied, and the Commonwealth had a discretion to determine the subsidy (there was no quantum or formula to determine it) the term was void. WEEK SIX 18 FORMALITIES THE STATUTE OF FRAUDS AND ITS AUSTRALIAN EQUIVALENTS Instruments Act 1958 (Vic) s 126 (1) An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person or upon a contract for the sale or other disposition of interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum, or note. (2) It is declared that the requirements of subsection (1) may be met in accordance with the Electronic Transactions (Victoria) Act 2000. Guarantee vs. indemnity Yeoman Credit Ltd v Latter [1961] 1 WLR 828 It was held that an indemnity is a contract by one party to keep the other harmless against loss, but a contract of guarantee is a contract to answer for the debt, default, or miscarriage of another who is primarily liable to the promise. ONLY A GUARANTEE REQUIRES A SIGNED NOTE OR MEMO UNDER THE ACT THE FORMALITIES REQUIRED Joinder of documents Tonitto v Bassal (1992) 28 NSWLR 564 In this case it was held that two documents (an option agreement and a letter) can be „joined‟ to satisfy the Statute of Frauds so long as the words used in one document are capable of referring to another, and evidence can be given to resolve the ambiguity. Signature Pirie v Saunders (1961) 104 CLR 149 Pirie grants Saunders a lease orally. During negotiations Pirie‟s solicitor took notes containing a brief outline of some of the terms. The court considered whether the solicitors notes constituted a „memo or note of agreement‟ and, if yes, whether the notes were signed by Pirie. It was held that the solicitor‟s notes could not be construed as a note or memorandum for the statute as the note did not list all the essential terms, and in particular, the fact that the notes did not even specify the 19 house to be leased was fatal. Moreover, the fact that Pirie stood by as his solicitor wrote his name was insufficient to give rise to an „authenticated signature.‟ Documents in electronic form Electronic Transactions (Victoria) Act 2000 (Vic) ss 7, 9 Section 7: A transaction is not invalid because it wholly or partially took place online. Section 9: The signature requirement of an electronic transaction can be met if a method is used to identify the person and indicate their approval of the transaction, and that method is reliable in all the circumstances and proven to do so, and the person who requires the signature gives consent for its transmission in that way. THE CONSEQUENCES OF NON-COMPLIANCE Unenforceability (Unenforceable but not void) Popiw v Popiw [1959] VR 197 It was held that an unenforceable contract can be used as a defence, and in some cases, may be subject to restitution. Part performance: Ogilvie v Ryan [1976] 2 NSWLR 504 Ms Ryan moves into a home with Ogilvie. Upon Ogilvie‟s death his executor commences proceedings to reacquire the home from Ryan, who alleged that the pair had previously agreed that the house would be hers, rent-free for as long as she lived, upon Ogilvie‟s death. It was held that a constructive trust will be declared in equity to defeat a species of fraud, namely that in which a defendant seeks to make an unconscionable use of his legal title by asserting it to defeat a beneficial interest in a property As for part performance, it was held that the narrower approach in Maddison v Alderson should be applied: “acts relied upon as part performance must be unequivocally and in their own nature referable to some such agreement as that alledged.‟ Thus a claim for part performance could not be pursued. (NOTE: Applying the broader test, that the acts must only point, on the balance of probabilities to the existence of an incomplete contract, would give rise to part performance in these circumstances) CAPACITY Age of Majority Act 1977 (Vic) s 3(1) The age of majority in Australia is 18. Persons under the age of 18, or the age of majority are classified as minors. 20 BINDING CONTRACTS: NECESSARIES Goods Act 1958 (Vic) s 7 Contracts for necessaries are binding on minors. A minor must only pay a „reasonable price‟ for those goods. Necessaries refer to goods suitable to the condition in life of such minor or other person and to his actual requirements at the time of sale and delivery. CONTRACTS BINDING UNLESS REPUDIATED CONTRACTS REQUIRING RATIFICATION Supreme Court Act 1986 (Vic) s 50 (1) No proceeding can be brought to charge a person (a) On a promise made after full age to pay a debt contracted during minority (b) On a ratification made after full age of a promise or contract made during minority (2) This section applies whether or not there was any new consideration for the promise or ratification VOID CONTRACTS Supreme Court Act 1986 (Vic) ss 49, 51 S49 Contracts made by a minor for (a) Repayment of money lent or to be lent (b) Payment of goods supplied or to be supplied, other than necessaries (c) Accounts stated Are void S51(1) If a minor who has contracted a loan (a contract for which is void under this division) agrees after full age to repay all or part of that loan, that agreement and any instruments relating to it is, subject to subsections (2) and (3), void against everyone. WEEK SEVEN ESTOPPEL 21 INTRODUCTION THE DEVELOPMENT AND ELEMENTS OF EQUITABLE ESTOPPEL Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 Quaglia asked for a rent reduction from her landlord Je Maintiendrai. Low demand for retail space put Quaglia in a good bargaining position: she asked for reduced rent. Je Maintiendrai charged a reduce rent, but once the tenancy ended they asked for „arrears‟ that were legally due under the terms of the lease. It was held that there is no valid reason for distinguishing between promissory and equitable estoppel. Since the Tennant‟s business was small it would be detrimental for it to pay these „arrears‟ (accrued over 18 months) in a lump sum. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Walton Stores negotiated with Mahers to lease a part of his land. Mahers was told that he must „act fast‟ in the destruction of a building on the land to secure the lease. Walton Stores rescinded from the deal. It was held that estoppel may be used offensively like a „sword‟ so long as the representor is unconscionable in his departure. That equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has played „such a part in the adoption of the assumption that it would be unfair or unjust if he were allowed to ignore it,‟ (Estoppel no longer requires a representation of fact or future conduct). Per Brennan J: to establish an equitable estoppel the plaintiff must prove: 1.The plaintiff assumed or expected that a particular legal relationship exists between the plaintiff and the defendant (or will exist in the future, and that the defendant was not free to withdraw from this representation). 2. The defendant induced the plaintiff to act on this assumption or expectation. 3. The plaintiff acts or abstains from acting in reliance on the assumption or expectation 4.The defendant knew or intended him to do so 5. The plaintiff‟s action or inaction will occasion detriment if the assumption or expectation is not fulfilled 6. The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. Legione v Hateley (1982) 152 CLR 406 Legione contracts to sell his land to Hateley, subject to a clause whereby neither party can enforce their contractual rights unless 14 days notice of default is given. Hateley defaults, and the Legiones give notice.
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