THE LAW OF COMMERCIAL CONTRACT

Law of Contract

Revision

THE LAW OF COMMERCIAL CONTRACT

6 elements of a valid contract Objective\Subjective Tests Domestic agreements Invitation to Treat Withdrawing an offer Rejection of offer Lapse of offer

THE LAW OF COMMERCIAL CONTRACT

Law of Contract

Acceptance

THE LAW OF COMMERCIAL CONTRACT

Accepting the Offer Only person to whom the offer was made may

accept Acceptance must be final & unqualified Must be communicated to the person who made

the offer (some exceptions)

THE LAW OF COMMERCIAL CONTRACT

Accepting the Offer (Cont.) Acceptance must be final & unqualified

“Subject to Formal Contract” – 3 possibilities

1. There is a contract & one of terms is that documentation be prepared

2. There is a contract but nothing can happen until contract prepared

THE LAW OF COMMERCIAL CONTRACT

Accepting the Offer (Cont.) Acceptance must be final & unqualified (cont.)

“Subject to Formal Contract” (cont.)

3. There is no contract Masters v Cameron (S&OR p82) Plastyne Products v Gall Engineering

(S&OR p83) Communications after acceptance are

irrelevant

THE LAW OF COMMERCIAL CONTRACT

Acceptance Must be Communicated Silence does not amount to acceptance Acceptance by large companies

Who must receive acceptance? Depends on intention of parties Acceptance usually occurs when the

communication is received in the ordinary course of business or would have been received if ordinary course of business were followed

THE LAW OF COMMERCIAL CONTRACT

Acceptance Must be Communicated Internet

Electronic Transactions Act Receipt occurs when it enters the

addressee’s designated information system Otherwise, when it comes to attention of

addressee

THE LAW OF COMMERCIAL CONTRACT

Acceptance Must be Communicated Express Communication of Acceptance is not

necessary where Implied from past dealings between parties Industry custom Acceptance indicated by conduct Unilateral contracts Postal rule applies

THE LAW OF COMMERCIAL CONTRACT

Acceptance Must be Communicated The Postal Rule

Applies where offeror has expressly or impliedly accepted post as the means of communication of acceptance

Acceptance occurs at time of posting not receipt

Applies to all situations where non-instantaneous communications are used

Often determines jurisdiction Berinkibon v Stahag Stahl (S&OR p 86)

THE LAW OF COMMERCIAL CONTRACT

Acceptance Must be Communicated Mode & timing of acceptance must conform to

offeror’s requirements BUT, nominating a mode of acceptance may not

set the only mode of service Spectra v Pindari

Agent of the person to whom the offer was made may accept on their behalf Powell v Lee (S&OR p87)

THE LAW OF COMMERCIAL CONTRACTHas an offer been

made? No Contract

Did the offeror intend to revoke

the offer?

Did the offeror communicate revocation?

Has the offer lapsed?

Has acceptance been received by

the offeror?

Was acceptance made under the

postal rule?

Contract

No

No

No

No

No

Yes

Yes

Yes

No

Yes

Yes

Yes

THE LAW OF COMMERCIAL CONTRACT

Fundamentals of Law

Consideration

THE LAW OF COMMERCIAL CONTRACT

Two Types of Enforceable Agreement Deeds

Contracts that comply with special rules Do not require consideration

Simple contracts Do require consideration

THE LAW OF COMMERCIAL CONTRACT

Deed In writing Maker of deed must sign, seal and deliver the

document Independent witness Special attestation clause

SIGNED SEALED AND DELIVERED )by the said JOE BLOGGS )in the presence of: )

THE LAW OF COMMERCIAL CONTRACT

Consideration Every simple contract must be supported by

consideration The law will not enforce a gratuitous or bare

promise Lack of consideration may be overcome by

the equitable doctrine of estoppel

THE LAW OF COMMERCIAL CONTRACT

What is Consideration Consideration must flow from both sides of the

contract Can be:

A promise to do something A promise not to do something Doing something Refraining from doing something A benefit for the promisee A benefit for a third person at the promisee’s direction A detriment to the promisor Anything of real value to the promisee

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Consideration Must Move From Promisor Only the person who has “paid” for the

promise can enforce it Dunlop v Selfridge (S&OR p101)

Called “Privity of Contract”

Dunlop Wholesaler(bought tyres from Dunlop, sold to retailers)

Selfridges(broke promise to wholesaler not to

discount)

Contract

Contract

THE LAW OF COMMERCIAL CONTRACT

Joint Promisee Rule If a promise is made to two or more people

jointly then only one promise need give consideration

All promisors must be parties to the contract Coulls v Bagot Executor and Trustee Co

(S&OR p 102)

THE LAW OF COMMERCIAL CONTRACT

Privity of Contract - Exceptions Statutory exceptions

Insurance Contracts entered into with the intention of benefiting another

Where one party acts as agent for another person

Contractual benefits held on trust for another Contractual benefits may be assigned

THE LAW OF COMMERCIAL CONTRACT

Consideration May Not Be Past A promise can be executed (i.e. present execution) or

executory (i.e. future execution) but cannot be past A promise must be paid for but if consideration has

already been given then there is nothing being paid for the new promise Roscorla v Thomas (S&OR p103)

Settling unsettled aspects of a past transaction may be consideration Re Casey’s Patents: Stewart v Casey (S&OR

p104)

THE LAW OF COMMERCIAL CONTRACT

Consideration May Be Inadequate Consideration must be sufficient i.e. have

some value in the eyes of the law Need not be equal in value to the promisor’s

promise The very nature of contract law is to let the

parties make their own bargain However, doctrine of unconscionable conduct

has developed to overcome resulting injustices

THE LAW OF COMMERCIAL CONTRACT

Consideration Must Be Sufficient (Cont) Settling disputes Forbearance to sue (i.e. an offer not to sue) is

good consideration provided The claim (defence) was reasonable The promisee had an honest belief that the claim

had a reasonable chance of success The promisee has not concealed any facts that

might affect the validity of the claim

Wigan v Edwards (S&OR p106)

THE LAW OF COMMERCIAL CONTRACT

Consideration Must Be Sufficient (Cont) Renegotiating a debt

Pinnel’s Case (S&OR p109)( approved by House of Lords in Foakes v Beer)

Exceptions Composition with creditors Payment by third party

Ways around Deed Payment in kind

THE LAW OF COMMERCIAL CONTRACT

Consideration Must Be Sufficient (Cont) Promising to perform an existing contract is

not consideration To be binding, there must be a promise to do

something additional to contracted duty Stilk v Myrick (S&OR P 107)

Rule may be undergoing change Williams v Roffey Bros. & Nicholls (S&OR p108)

A practical benefit is conferred No duress

Followed in NSW

THE LAW OF COMMERCIAL CONTRACT

Consideration Must Be Sufficient (Cont) Promise to perform an existing contractual

duty to a third party is sufficient consideration Performance of a public duty is not sufficient

consideration Collins v Godefroy (S&OR p110)

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Consideration Must Be Sufficient (Cont) Illusory promises are not consideration E.g. “in consideration of natural love and

affection” Too uncertain to be enforced Dunton v Dunton (S&OR p 106)

THE LAW OF COMMERCIAL CONTRACT

Consideration Must Be Sufficient $1 for a Rolls Royce “I promise to be an honest public servant” “I’ll give up my legal claim against you” “I will pay you less than I owe you if you

forget the rest” “In love and affection” “I promise to carry out my contractual

obligations”

THE LAW OF COMMERCIAL CONTRACT

Fundamentals of Law

Capacity to Contract

THE LAW OF COMMERCIAL CONTRACT

Contracts with Minors Anyone under 18 years of age Contracts with minors can be

Valid – legally enforceable Voidable – legally enforceable until

repudiated by the minor Void – no legal effect

THE LAW OF COMMERCIAL CONTRACT

Contracts with Minors (Cont) Valid contracts

Supply of necessaries Contract for the supply of goods and services

that are suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery

Onus is one person seeking to enforce contract against minor

Nash v Inman (S&OR p116) Reasonable price not contract price

Beneficial contracts of service

THE LAW OF COMMERCIAL CONTRACT

Contracts with Minors (Cont) Benefical contracts of service

E.g. apprenticeships Must be for the benefit of the minor

Ratification by Minor after turning 18 Contract becomes valid and enforceable

Statutory modification NSW & SA

THE LAW OF COMMERCIAL CONTRACT

Fundamentals of Law

Certainty

THE LAW OF COMMERCIAL CONTRACT

Agreement Must be Certain Must be sufficiently certain in all its essential

elements especially: Subject matter Price

Must not contain unclear, ambiguous or contradictory terms

Courts will uphold contract where possible Implying a reasonable price Whitlock v Brew (S&OR p 89)

THE LAW OF COMMERCIAL CONTRACT

Agreement Must be Certain (cont.) Agreement to agree Agreement to negotiate Subject to contract Subject to finance etc

THE LAW OF COMMERCIAL CONTRACT

Reminder Exam next week

Australian Legal System Week 1 material Revision material from Week 2

Multiple choice 30 minutes Closed book

Can use approved dictionary No electronic devices