Lect 7 Formation of contracts – (Intention and Agreement)
Where the agreement between the parties is of a non-commercial nature (social agreements-ones made between friends/acquaintances; family/domestic
agreements; voluntary agreements-red cross, youth camp), it is presumed that the parties do not intend to create legal relations (Balfour v Balfour).
Where the agreement between the parties is of a commercial nature, it is presumed that the parties do intend to create legal relations (Edwards v Skyways Ltd).
But Courts may rebut the presumption if the consequences of the promise are serious for one of the parties and they have changed their position in reliance on the
promise that has been made to them (Wakeling v Ripley-brother and sister) (family/domestic agreement)
The social presumption can be rebutted if the agreement was made after the parties had separated (Popiw vs Popiw)
Agreement-Offer – offer or invitation to treat
Rule 1: Goods displayed on shelves or shop windows are considered to be an invitation to treat: Pharmaceutical Society v Boots Cash Chemists.
Advertising of goods or services in newspapers or on radio, television or Internet are generally considered to be an invitation to treat (Partridge v Crittenden), but
sometimes can be held to be an offer (Carlill v Carbolic Smoke Ball).
Automatic vending machines such as drink, confectionary and self-serve garages selling petrol are not considered as invitations to treat, but offers.
Communication of acceptance -- PAR states: If acceptance by post was contemplated by the parties, acceptance occurs when the letter is posted, not when it is
actually received (Adams v Lindsell) eg if the offer was made by post, or that post was specified as being acceptable
If PAR is excluded then acceptance is when the letter is received (Adams v Lindsell) – E.g. in the order it says ‘your acceptance of our order will be effective upon
receipt of your acceptance at our office’
Rule 4: Offers may be terminated before acceptance takes place (Byrne & Co v Leon Van Tienhoven & Co)
o Revocation of the offer by letter– to be effective must be received by the offeree before they post their letter of acceptance (Byrne v Van Tienhoven).
Where the offeror promised to keep the offer open for a specified period, this is called an period, this promise will be unenforceable unless it is supported by the
offeree’s consideration (Goldsborough Mort v Quinn) (usually money in the form of a deposit).
Lect 8 Formation of contracts (Consideration and Consent)
Consideration must not be past - Consideration may be present (executed) or future (executory) but may not be past (Roscorla v Thomas).
Consideration must move from the promisee (Dunlop Pneumatic Tyre Co Ltd v Selfridge) -- The promisee is the person receiving the promise. They have to do
something (consideration) in return for that promise. Note that consideration only has to move from the promisee, not necessarily move to the promisor.
Consideration that is too vague, illegal or impossible is not valid consideration (White v Bluett)
Consideration must be sufficient but need not be adequate (Chappell & Co Ltd v Nestle Co Ltd) – finding the item but not being aware of the reward
Repeating an existing duty imposed by law is not sufficient consideration (Collins v Godefroy). Eg. Police officer wanting an award for finding the item.
Mutual mistake: For a contract to be void for mutual mistake - Would a reasonable person consider that there was an agreement between the parties? (Raffles v
Common mistake (both parties make the same mistake) - The mistake must be about the existence of the subject matter of the contract (Leaf v International
Galleries). Mistakes as to the quality, nature or value of the subject matter will not affect the contract at common law (Leaf v International Galleries).
Unilateral mistake (only one party is mistaken) - The court will declare a contract void for unilateral mistake where (Boulton v Jones):
To succeed in a plea of non est factum, it must be shown that (Petelin v Cullen):
o The person believed that the document they signed is radically different from what they believed it to be. The mistake must go to the fundamental
nature of the document, not its contents; and
o There must be an absence of carelessness in the execution of the document.
The class of persons who can raise this defence are limited to (Petelin v Cullen):
o Those who are unable to read due to blindness or illiteracy and who must rely on others for advice about what they are signing
o Those who through no fault of their own are unable to understand the meaning of a particular document.
Unconscionable conduct - For a contract to be set aside on the grounds that it was unconscionable, the plaintiff must prove (Commercial Bank v Amadio):
o They were in a position of special disadvantage at the time of the contract;
o It must have substantially affected their ability to protect themselves;
o The defendant must have known or should have known of the plaintiff’s disability and had taken advantage of it.
What amounts to special disadvantage is difficult to accurately define, but includes sickness, illiteracy, lack of education (Blomley v Ryan).
Lect 9 – Terms of the contract (Exclusion clause, Express terms and Remedies for breach of contract)
Signed document: Signature rule: terms contained in a signed document will normally be part of the contract, regardless of whether they have been read or not
(L’Estrange v Graucob Ltd) - exclusion clause must be part of the agreement between the parties --- is it a signed document or an unsigned document?
If the document is an unsigned, need to consider:
o Nature of the document should be contractual. If no, then can’t rely on the exclusion clause (Causer v Browne)
o Have reasonable steps been taken to give sufficient notice of the term? If no, then can’t rely on the exclusion clause (Baltic Shipping Company v Dillon;
Thornton v Shoe Lane Parking Ltd)
o Was notice given after the contract was concluded? (Olley v Marlborough Court Ltd)
o Can the term be incorporated by prior dealings? (Balmain New Ferry Co Ltd v Robertson)
‘4 corners’ rule: only breaches within the normal operation of the contract are covered by an exclusion clause(City of Sydney Council v West) – assume exclusion
clause has been/is incorporated into the contract
Express Terms --- The Court applies an objective test (Dick Bentley Productions Ltd v Harold Smith Motors Ltd) – what would a reasonable person, aware of the
circumstances of the case, believe to be the parties intention in regard to the statement?
o Time lapse between statement and final agreement – the longer the lapse of time between the making of the statement and the final agreement, the
more likely it is to be treated as an inducement and not intended to form part of the agreement
o What importance did the parties attach to the statement - if the parties place considerable importance on the statement, the courts will be more willing
to treat it as a term and not a mere representation.
o Did one of the parties have special skill or knowledge – where one of the parties had some special skill/knowledge not possessed by the other party with
regard to the subject matter of the contract, the statement is more likely a term.
A misrepresentation is false inducement that induces the contract so that consent is not genuine (Whittington v Seal-Hayne)
To successfully argue collateral contract, plaintiff must show:
o The statement was so important to them that, but for it, they would not have entered into the contract at all (de Lassalle v Guildford);
o The statement relied on is promissory (not descriptive) (JJ Savage & Sons Pty Ltd v Blakney);
o The collateral contract is supported by consideration (de Lasalle v Guildford); and
o The collateral contract is c