BTF1010: commercial law: Contracts

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Business Research
Mark Bender

BTF1010 Commercial Law Chapter Summaries Basics: Case citation: Derry v Peek (1899) 14 App Cas 337 - Appellant - Respondent - Year of law report - Volume of report - Name of law report - Page number Ratio decidendi: reasons that higher courts decided something the way that they did (binding decision) Obiter Dicta: things said by the way (persuasive force only) Where there is a question of conflict between parliamentary law and judge-made law, parliamentary law is always superior. J after a name indicates ‘Justice’ LJ = Lord Justice (English court of appeal) MR = Master of the Rolls (English court of appeal) Plaintiff and defendant in a State Court, applicant and respondent in Federal Court Trials in a federal court Trials in a state court • A Smith (Applicant) • A Smith (Plaintiff) • v • v • B Jones (Respondent) • B Jones (Defendant) On appeal, the matter becomes Jones v Smith, Jones is the appellant and Smith the respondent. Chapter 4: Contract – Offer and Acceptance What is a contract? A contract is an agreement between two parties which will be enforced by a court of law. A contract does not need to be in writing. An oral agreement is enforceable in the same way as a written agreement. Advantage of a written agreement is proof. Intention is capable of two constructions: 1- To ascertain subjective intention is to examine a person’s state of mind 2- To ascertain objective intention is to ignore the person’s state of mind and to look at what they said and did. On the basis of what they said and did, it is possible to conclude that any reasonable person doing the same things within the same context must have had a particular intention. This is called the ‘Reasonable Person Test’ Contractual remedies : - Termination of contract: only available for serious breaches of contract - Damages: purpose is to give the innocent party monetary compensation for the loss of contractual benefits. See: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] - Specific Performance: an order by the court requiring a party to the contract to honour his or her contractual obligations: see Goldsborough Mort & Co Ltd v Quinn - Injunction: an order by the court requiring a person to stop doing something. In contract terms, to stop acting in breach of the contract. Will only be granted for serious breaches of contract : (see Lumley v Wagner [1843-60] All ER Rep 368) - Recovery of the contract price: where a sum of money has become due under a contract, but has not been paid, the person to whom the money is owed may sue for recovery of that sum. See Hoenig v Isaacs - Agreed damages clauses: Contract itself may make provision for the damages to be paid in the case of breach. This is called an agreed or liquidated damages clause. Offer: the indication by one party to another of their willingness to enter into a contract with them on certain terms. OR where one person indicates to another a willingness to enter into a binding agreement on certain terms (more accepted) An offer; or an indication of present intention? Harvey v Facey [1893] established that clarification of information does not constitute an offer. An offer or an invitation to treat? E.g. an advertisement in a newspaper. It can also be called an invitation to negotiate (See Partridge v Crittenden [1968] 2 All ER 421/ Fisher v Bell 1960). The distinction between an offer and an invitation to treat lies in the objective intention of the person making the offer or invitation to treat. Carlill v Carbolic Smoke Ball Co. [1893] = offer made and not simply invitation to treat. At an auction, the offer is made by the bidder and the auctioneer decides whether to accept or reject. Likewise the tenderer makes the offer not the person calling for the tenders: Spencer v Harding [1870]. Fate of an offer: Withdrawal/ revocation of an offer An offer can be withdrawn subject to the following rules: - Once an offer is accepted it cannot be revoked (Routledge v Grant [1828]) - Revocation must be communicated to the offeree (Byrne & Co v Van Tienhoven 1880; postal rule doesn’t apply to revocation) - Communication of the revocation does not have to be made by the offeror personally (Dickinson v Dodd’s [1876] 2 Ch D 463) Is it possible to revoke a unilateral offer? (Unilateral = only one party needs to act without providing consideration) Where the offer involves a unilateral promise and the offeree has acted on the promise, the offeror will be prevented from withdrawing the offer until the offeree has had a reasonable opportunity to complete. An option: is a contract to keep an offer open- the offer cannot be revoked. E.g. if a deposit had been made to keep the offer open, it cannot be revoked. Rejecting an offer - May be rejected explicitly or by implication - Offer is terminated on rejection and cannot subsequently be accepted: Hyde v Wrench [1840]. - An offer is rejected by the offeree doing something that is inconsistent with an intention to accept - Counter offer amounts to rejection: an offer is rejected by the offeree making a counter offer. Any material alteration of the terms of the offer will be a counter offer: Hyde v Wrench [1840]. - Dissatisfaction with the offer does not amount to rejection i.e. complaining about terms is not rejection: See Brambles Holdings v Bathurst City Council [2001]. - Asking for clarification of the terms of the offer is not a counter offer! See Stevenson Jacques & Co v Mclean (1880) 5 QBD 346 AND Turner, Kempson & Co v Camm [1922] Accepting the offer: - Only the offeree may accept the offer See Boulton v Jones [1857]/ Tallerman & Co v Nathan’s Merchandise [1957] - Acceptance must be final and unqualified (Masters v Cameron[1954] 91 CLR 353) - Acceptance must be communicated to the offeror unless one of the exceptions applies (See Felthouse v Bindley [1862] 11 CBNS869) There are 5 exceptions to the rule that acceptance must be communicated: 1) Where the parties have dealt regularly with one another, it may be reasonable to conclude that a contract exists even though the offeree has not formally accepted 2) Where the offeror alnd offeree are in the same industry and custom within that industry suggests that formal acceptance is not necessary, a contract may exist even though the offeree has not communicated acceptance 3) Acceptance may be indicated by conduct: See Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [1988]. 4) In the case of unilateral contracts (Carlill v Carbolic smoke ball) it is not necessary for the offeree to advise the offeror of acceptance 5) The postal rule Postal rule Where the offeror has expressly or impliedly accepted the ordinary post as the means of communication (Tallerman & Co v Nathan’s Merchandise [1957] 98 CLR 93), acceptance occurs when the letter is posted, even if the letter is lost in the post - Adams v Lindsell [1818] - For the postal rule to apply, there must be evidence that the offeror has accepted the post as the method of acceptance (Bresson v Squires [1974] 2 NSWLR 460) - Can acceptance be communicated by someone other than offeree? Provided the third person has actual authority to communicate acceptance, or reasonably appears to have such authority, the acceptance is valid. Otherwise, it is not; Powell v Lee (1908) Note: Postal rule doesn’t apply to revocation of an offer, only acceptance: Byrne & Co. v Van Tienhoven & Co [1880]. Lapse of an offer : The death of either the offeror or offeree terminates an offer (Fong v Cilli [1968] 11 FLR 495). The result would differ if an option was involved and the offer did not involve personal skill or service by the deceased: Carter v Hyde [1923] 33 CLR 115 Due to time: Where no time limit is mentioned, the offer remains open for a reasonable time: (Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 Ex 109). What constitutes a reasonable time depends on the circumstances: - Method by which the offer was made (e.g. telegram demands quicker response than ordinary mail) - Nature of the transaction (sale of book would demand faster reply than sale of a house) - Terms of the contract - Actions of the parties between making the offer and the acceptance - Any evidence that the offeror has intimated an appropriate time frame Agreement must be specific and certain in all its essential elements, otherwise it is void. It cannot contain unclear, ambiguous or contradictory terms: Toyota motor corporation v Ken Morgan motors [1994] 2 VR 106 AND Whitlock v Brew [1968] Chapter 5: Contract – Intention and Consideration Intention to contract: - Courts use a reasonable person test to decide whether the parties intended to contract: See Taylor v Johnson [1983]. - For social/domestic agreements, courts begin with the presumption that parties did not intend to contract: Balfour v Balfour [1919] - Social/domestic agreements CAN be contracts if that was the intention of the parties: Ermogenous v Greek Orthodoc Community of SA Inc [2002]. - For commercial agreements, courts begin with the presumption that the parties intended their agreement to be legally enforceable: Rose and Franc Co v J R Crompton and Bros Ltd [1923] – made it clear that they did not want to create legal relations - Letters of comfort: one party wants to be bound but the other party doesn’t: See Kleinwort Benson Ltd v Malaysia Mining Corporation [1988] AND Commonwealth Bank of Australia v TLI Management Pty Ltd [1990]. - Agreements made ‘subject to contract’ (agree with a contract to be created later) are generally held as non-binding by the courts: See Masters v Cameron [1954] Consideration : - Consideration is something of value provided in return for a promise - If there is no consideration, an agreement is only enforceable in the form of a deed which requires the marker of the deed to ‘sign, seal and deliver’ the document. - All simple contracts require consideration to be binding: See Rann v Hughes [1788] - May be:  A promise to do something: See Esso Petroleum Ltd. V Commissioners of customs & excise [1976]  A promise not to do something  Doing something: See Carlill v Carbolic Smoke ball Co [1893]  Refraining from doing something - Only a promisee may sue on the contract: See Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1914-15] - Privity of contract rule: If the promise is made by the promisor to two or more persons jointly, only one of the persons needs to provide consideration: See Coulls v Bagot’s Executor & Trustee Co Ltd [1967] - Consideration may be present of future but cannot be past: See Roscorla v Thomas [1842] - Consideration does not need to be of equal in value to the promisor’s promise. It does not have to be adequate: Thomas v Thomas [1842] - Consideration must be sufficient: e.g. past consideration is not sufficient.  Illusory promises are not consideration: in consideration of love and affection: Eastwood v Kenyon [1840].  Where the promisee has not agreed to be bound by anything really: See Francis v South Sydney District Rugby League Football Club Ltd [2002]  Giving up a legal claim can be consideration: See Wigan v Edwards [1973] Renegotiating Contracts : - When renegotiating a contract, fresh consideration is necessary: See Mitchell v Pacific Dawn Pty Ltd [2003]. - A promise to fulfil a contractual duty already owing is not good consideration unless the party provides something in addition to the existing duty: See Stilk v Myrick [1809] And Pinnel’s Case [1602]. However in some cases the courts may recognise a potentially hidden form of consideration: Williams v Roffey Bros & Nicholls Ltd [1991] - - Exceptions to Foakes v Beer = part payment by a third party (see p 209) - Promising to perform a public duty already owing is not good consideration: See Collins v Godefroy [1831]. Promissory Estoppel: To prevent certain types of unfairness – the courts will use the doctrine of estoppel. Estoppel is a doctrine based on fairness. A person who represents that a certain situation exists should not be allowed at a later date to deny the truth of that representation. Promissory estoppel is different in that it deals with promises about future whereas the original estoppel dealt with misrepresentation of existing fact. - A promisee can enforce a promise even though no consideration has been provided, where it has been relied upon and it would be unfair to allow the promisor to renege. Central London property trust Ltd v High trees house Ltd [1947] and Walton stores (interstate) Ltd v Maher [1988] – (where the formalities of making a contract have not been satisfied) Or when no consideration exists  Je Maintiendrai Pty Ltd v Quaglia [1980]. There are 5 requirements to establish promissory estoppel: 1: The assumption – the promisee on reasonable grounds, assumed: a legal relationship existed (Je Maintiendrai Pty Ltd v Quaglia [1980]) OR would exist (Walton stores (interstate) Ltd v Maher [1988]) between the promisor and promisee. 2: The promisor was responsible for the assumption – The promisor either: induced the assumption; or being aware that the promisee had made the assumption, deliberately remained silent in circumstances where the promisor could reasonably be expected to speak 3: The reliance – the promisee acted (or refrained from acting) on the faith of the assumption 4: Promisor’s intent – the promisor knew or intended the promisee to rely on the assumption 5: The detriment – the promisee will suffer a detriment if the promisor is permitted to renege on the promise. Chapter 6: Express Terms of Contracts Three tests for establishing express terms of a contract: Ascertaining the relevant evidence - Parol evidence rule: courts presume that the written document contains the entire agreement, and disallow oral evidence to add to or vary the written document. - If the court is convinced that the written document is incomplete or an incorrect record of the parties’ transaction, the court must not apply the rule Statements made after contract formed are not terms: - A party cannot be bound by statements, promises or representations made after the contract has been formed unless fresh consideration is provided: See Roscorla v Thomas [1842] - Sellers of packaged products can’t rely on a clause contained in the sealed package unless it is brought to the buyer’s attention prior to sale: See Hardchrome Engineering v Kambrook [2000] - Car Park issued exemption clause after Thornton bought ticket in Thornton v Shoe Lane Parking Ltd [1971] - Past dealings can be important where the parties deal with one another on a regular/consistent basis Importance of signed documents - General rule: A person who signs a document that has a contractual appearance is bound by the contents of the document. See Yarkey v Jones [1939] And Wilton v Farnworth [1948] - Not reading the contract is irrelevant; the person signing is still bound: See L’estrange v Graucob. Exceptions: - The document didn’t appear to be contractual (reasonable person test): See Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] - If promissory estoppel applies: a signed agreement may not be enforceable where it is at odds with terms expressly, but orally, agreed between the parties. See Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] - Misrepresentation or deceptive conduct: See Curtis v Chemical Cleaning and Dyeing Co [1951] - Condition precedent: the signed document will not be binding if the parties have made it subject to a condition precedent - The document does not accurately record the agreement: mistake in recording the terms and one party is unfairly trying to take advantage of the mistake: See Taylor v Johnson [1983] - Equitable doctrines: some situations in which the court will not enforce a contract because it would be inequitable (unfair) to do so. These include: unconscionable conduct, duress, undue influence and unilateral mistake. Incorporating unsigned terms into contracts by notice - Reasonable notice test: if reasonable notice has been given, it does not matter whether the other party read the clause or not: Parker v South Eastern Railway Co [1877] What constitutes reasonable notice? It is necessary to look at the facts of the case: - Whether the document was contractual in nature - Whether the term sought to be incorporated was unusual for that type of contract - Whether the parties discussed the matter Contractual in nature: Would a reasonable person expect the document to contain terms and conditions? Or just a docket to be filed away unread or a receipt similar to that in D J Hill and Co Pty Ltd v Walter H Wright Pty Ltd And Oceanic Sun Line Special Shipping Co Inc. v Fay [1988] Unusual terms: If the unsigned term is particularly unusual, extra notice will have to be given: Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] Discussed the matter: Even if sufficient notice is given, the incorporation may be subject to any oral statement to the contrary; Couchman v Hill [1947] When are oral statements binding? Statement must be promissory in nature: - Only statements promissory in nature become terms. - Must apply a reasonable bystander test  Which statements would a reasonable bystander, aware of the circumstances of the case, regard as promissory?  Oscar Chess Ltd v Williams [1957]: Denning Lj said The question whether a term was intended depends on the conduct of the parties, on their words and behaviour, rather than their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. Guidelines to the reasonable bystander test: - Was the representation included in the written document? - When in the negotiations was the representation made? - Did the representation sound promissory - How objectively important is the representation to the overall deal? - Did eithe
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