TOPIC 2:AGREEMENT ( consensus ad idem )

Transcription

1 TOPIC 2:AGREEMENT ( consensus ad idem ) The nature of Agreement Agreement is and understanding, or meeting of the minds, reached between two or more parties about a particular subject. Although the concepts of consensus and free association lie at the heart of "agreement" in contract law, It is : Agreement is required only about entering into a contract and its terms, not about the desirability of doing so, or the motivation actuating its formation; An agreement can exist even though one, or both, of the parties believed that they were forced to enter into it because of their economic or personal circumstances; An agreement can exist even though one of the parties is not happy about its terms and has entered into it only unwillingly. Agreement must be voluntary must not be the result of illegitimate pressure e.g. at gun point. more commercial pressure does not render contract involuntary e.g. mere desperation. E.g. if A and B reached an agreement that a car needed a new engine the fact there is no promise for a new engine means the second element is not present Two elements that make a promise contractual: 1. A meeting of the minds of the parties (consensus ad idem) 2. At least one promise How do we determine if there has been an agreement? Subjective approach: Asking whether there is an agreement Objective approach: manifestation of what has occurred what a reasonable person would consider an agreement. Smith v Hughes (1871) LR 6 QB 597 (Court of Queen's Bench) Is about meeting mind between the parties They never had discussion about being new oat or old oat FACTS: Smith offered oats to Hughes and showed him a sample of what was for sale. Hughes believed that oats were old (better) and agreed to purchase, where he later discovered that it was new oats and refused to pay and requested to return them back. Smith who was aware about new oats refused to take back and sued for contract price. The quality was a buyer, not the terms of the contract. Both parties agreed to the sale and purchase of the particular parcel of oats. the conditional of the oats was not a term of the contract.

2 A reasonable man would believe that he was assenting to the terms proposed by the other party, and the other party entered into the contract by depending on it. therefore that person will be equally bound if he had intended to agree to the other party s terms. International Perspectives Both Indian and Chinese contract law requires a voluntary agreement between two parties in order for a contract to form. Indian Law makes clear that agreements are contracts if made with the free consent of the parties who are competent and provide valuable consideration (section 10). Chinese law makes clear that neither party impose their will on the other (article 3), nor may external parties get in the way with the right of an individual to enter into a contract (article 4). In addition, unlike (most) Australian law, the Chinese law expressly requires parties to abide by the principles of fairness in determining rights and obligations (article 5) and abide by the principles of good faith in exercising their rights and performing their obligations (article 6). Offer and Acceptance For an agreement to be reached there must be an offer made by one party, which is accepted by the other. Offer by one party Acceptance with other party Before you entering the contract parties need to define the term of the contract: Examine agreement in terms of offer and acceptance Important for when are where contract was formed. A unilateral offer is one in which the offeree accepts the offer by performing his or her side of the bargain. E.g. offers of reward A bilateral offer is when both parties perform their promises. International Perspectives The concept of offer and acceptance for the formation of a contract exists in both Indian and Chinese contract law. International contract law: Indian Contract Act 1872: voluntary agreement however raises question about intent of contractual relations Contract Law of People s Republic of China 1999: voluntary agreement with people with equal rights where both parties abide by fair principles and in good faith.

3 Offer Offer: a promise by one person (the offeror) to do something or not to do something if the offeree responds in a stipulated manner. Offer has to be communication between the party or obligation on other party to invite them to accept the offer Clear proposal that is capable of being accepted A clear statement made by one party to the other upon which one party agrees to be bound - An offer can only be accepted by those to who it is made. In most (but not all) cases, an agreement is reached by one party communicating to the other an "offer" which the latter "accepts. Any form of words or conduct can amount to an offer, or acceptance, so long as the intention of the party communicating it can be discerned. If there is a dispute about when or where an agreement was made, this will be resolved by analysing the dealings of the parties to determine whether one of them made an offer which the other accepted. Rules concerning an offer 1. Acceptance must occur in response to the offer Ø Person accepting (offeree) must act pursuant to the offer met Ø There must be consensus ad idem and this is not possible if the offeree acted for some other reason other than to comply with the offer. There cannot be true consensus unless the acceptance related to the offer: R v Clarke (1927) 2. Who can accept the offer Ø If an offer is directed to a particular individual or to the members of a particular group, the offer can only be accepted by that individual or a member by that group Ø World at Large- when an offer is made to the whole world it can be accepted by anyone who performs the requirements of that offer: Carlill v Carbolic Smoke Ball Co (1892) 3. There must be correspondence between offer and acceptance Ø For valid acceptance, acceptance must correspond exactly with the terms of that offer Ø If offeree purports to accept an offer but does so in terms that are different with what is contained in the offer, there is no consensus ad idem and therefore there cannot be an agreement: Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 4. Acceptance must be communicated Agreement is not reached unless the offeror is notified of acceptance The decision to accept must actually be communicated The agreement is concluded at the time the acceptance is received by the offeror rather than the time it is sent by the offeree

4 There cannot be consensus if the offeree keeps to her/him self that he/she accepts: Felthouse v Bindley (1862) A mere puff: A mere puff is a non-promissory statement that may be used as part of negotiations to advertise a product and induce another to enter into a contract. A mere puff is an exaggerated statement that no reasonable person would believe to be true 1. An offer is only effective once communicated to the offeree or his or her agent If the offeree is unaware of the offer, it is impossible to accept the offer An offer must be communicated to the person or persons for whom it was intended Cole v Cottingham (1837) R V Clarke (1927) 2. An offer can be terminated An offer can be terminated at any time before it has been accepted However, once an offer has been made it becomes irrevocable: Great Northern Railway Co v Witham (1873) a) General and Specific Offers - to whom can an offer be made? An offer can be made to a particular person, to a group or to the whole world. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 English Court of Appeal FACTS: Carbolic smoke ball company made a product which was designed to prevent cold and flu. company advertisement it on a paper which stated, 100 pounds will rewarded to the person who will inflected with influenza after using smoke ball. However in regards to advertisement, Mrs Carlill bought one of the balls and used it as directed. Nevertheless she contracted influenza. Where upon she claimed the reward advertised. She succeeded at first instance. The company appealed Issue arose whether there was a valid offer. The appellants argued that the promise was not made to anyone in particular. 1. Offer - to pay $100 to anyone using the ball as directed contracting a cold/flu 2. To whom the offer was made: world (including Carlill) 3. Acceptance: anyone using the balls who contracted the flu Offers distinguished from invitations to deal Offer: Communication where the party making it, intended that an affirmative response would immediately give rise to an agreement.

5 Invitation to deal: Where communication was intended to merely initiate negotiation. If there is an affirmative response this is only an OFFER to buy. For a communication to constitute an offer the party making it must intend that a positive response will give rise to a final agreement, rather than merely further negotiation. Ø A communication intended to have the latter effect is known as an invitation to deal. The distinction between the two is important because whereas an positive response to an offer will create an agreement, an positive response to an invitation to deal will make only an offer which may be accepted or rejected. Difference is key: if communication is characterized as an offer an affirmative response creates an agreement. If communication is characterized as invitation to deal a response can only be an offer when the party issuing the offer can accept of reject. E.g. how much would you be willing to accept for your car. b) Factors to help decide if an offer or invitation to deal Test: Intention of the parties Whether a statement amounts to an offer or invitation to deal depends on the intention of the person making it, Determined objectively: Ä If a communication clearly indicates a person does not intend to be bound by the recipients it will not be an offer; Ä Use of the words offer or acceptance are not important but will be relevant; Ä If it would be commercially inconvenient for a communication to constitute an offer it is more likely it will be regarded as an invitation to deal; Ä If further discussion is required between the parties before an agreement can be concluded the communication is likely to be regarded as an invitation to deal; Ä Communications inviting submission of tenders are generally invitations to deal, Whether or not the person making the supposed offer intends to be bound by it. Examples of invitation to treat Advertisements of goods and sales in a catalogue: the owner of the goods is inviting others to make an offeror the goods and it is once the customer places an order that an offer is made and then can be accepted or rejected. o Grainger v Gough [1896] o Patridge v Crittenden [1968]

6 However, it does not mean that advertisements can never constitute offers: Carlill v Smoke Ball case. If adverts are intended to be offers, they must be worded to reflect this. If the advertising is too unclear to believable, it has to be read, as it would be by the persons to whom it was directed. In Carlill s case the judge held that based on the facts, such persons would regard it as a genuine offer. Example #1: Displaying goods Goods Displayed in Shops: Displaying of goods is usually invitation to deal rather than offer to sell even though there is a price tag. When the customer presents the goods to the cashier that is treated by the courts as the offer, which can then be accepted or rejected by the cashier/shopkeeper. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 (English Court of Appeal) FACTS Boots operated a self-service store. Customers selected items from shelves and took them to cashier s desk to pay With all drugs, sale was supervised by pharmacists The Pharmaceutical Society alleged that boots infringed the Pharmacy and Poisons Act 1993, which required sale of certain drugs to be supervised by a registered pharmacist. The contract concluded when the drug were put into the basket or whether the contract was concluded when payment was. RESULT: Was displaying goods on shelf an offer or invitation to deal? Invitation to deal - They need to be able to change their mind and put an item back. Why? Commercial convenience (look at objective intent) What constitutes an offer in a self-serve store? Customer offers to buy when takes goods to checkout and the person at the checkout can accept or reject that offer. When is contract concluded? When shop accepts offer at checkout What was the result here? Contract formed at sales desk No contravention of legislation

7 Example #2:Auctions Advertisement of auction is a declaration of the intention to hold a sale. It is not an offer binding the auctioneer to sell the property or to be liable if the auction is cancelled. The person who bids makes an offer and the acceptance is once the auctioneer accepts the highest bid. In AGC (Advances) Ltd v McWhirter the court analyzed an auction as involving the auctioneer inviting offers (an invitation to deal), which they may accept or reject. This is the case even where the auction is without reserve. However, where an auction is without reserve then while the owner/vender remains free to refuse to accept the bidder s offer, there may be a contract between the auctioneer and the highest bidder enabling the highest bidder to recover damages if the seller refused to accept the offer. This is because when an auction is advertised as being without reserve the auctioneer is offering to knock down the property to the highest bidder. FACTS: AGC (Advances) Ltd v McWhirter 1977) 1 BLR 9454 Supreme Court of NSW AGC put up property for sale Auction subject to reserve (the price a property has to reach before they sell) Highest bid of $70, less than reserve AGC instructed auctioneer to withdraw reserve Mr McWhirter then bid $70, Not accepted (why not?) What did AGC claim? AGC claimed that the bid was never accepted because just because the reserve was withdrawn is does not mean instant acceptance of the highest bid Holland J: Rejected. Auctioneer invites offers Bids constitute offers Bidders at auctions make offers which may be accepted or rejected. These may be accepted or rejected by seller Separate contract may exist with auctioneer Withdrawing reserve does not constitute definite offer to sell to highest bidder. Ø Summary: As between seller and buyer in auction, auctioneer invites the offer. Example #3: Advertisements Advertisements provide a classic example of an invitation to deal

8 In most cases it is clear that advertisers intend only to make such an invitation and not to make an offer. It would be commercially undesirable, in most cases, for an advertisement to be an offer otherwise an advertiser who ran out of stock on the advertised product due to high demand would be guilty of breach of contract every time a customer came in accepting the advertised offer to sell. In some cases, however, advertisers will intend to make an offer (eg, an offer may be limited to the first five customers or be conditional, as in Carlill, so that it is not commercially inconvenient for them to be classified as offers), so it is important to examine the facts in each cases). Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (1957), Supreme Court of Minnesota FACTS: Great Minneapolis advertised in a newspaper as Saturday 9 AM sharp. 3 brand new fur coats worth to $100. First served each $1. Lefkowitz was the first to arrive but GM refused to sell him a coat. Where the offer is clear, definite and explicit, and leaves nothing open to negotiation, it constitutes an offer, acceptance of which will complete the contract. Each case will depend on the legal intention of the parties and the surrounding circumstances. There was a contract and GM was in breach. Bait Advertising Bait advertising: advertising cheap goods to attract customers with the intention of selling them other goods at normal prices rather than what is advertised. - This is now prohibited by Australia Consumer Law. S 35: (1) A person must not, in trade or commerce, advertise goods or services for supply at a specified price if a) Reasonable grounds for believing a person will not be able to offer for supply those goods or services at the time in the amount, in regard to: the nature of the market in which the person carries out business and nature of the advertisement; and b) The person is aware or should be aware of these grounds. S 56: Can be used only for reasonable quantity and reasonable period of time People are not allow to use this to just bring the people to the door, It is misleading and deceptive conduct (when they know they cannot supply the good) Suppliers to attract customers to a store for a heavily discounted item use bait advertising or door buster sales. Suppliers can do this without risking financial damage because, as the advertisement is classified as an invitation to deal rather than an offer, a customer cannot insist on the product being sold at that price (or sold at all if stocks have run out).

9 To prevent suppliers abusing this distinction legislation has developed to regulate such sales. For example, s 35 of the Australian Consumer Law (in Schedule 2 of the Competition and Consumer Act 2010 previously s 56 of the Trade Practices Act 1974 (Cth)) and state fair trading legislation makes it an offence for a supplier to advertise goods or services for sale at a particular price when they have reason to believe they will not be able to supply them in reasonable quantities, or for a reasonable time. Example #4: Tender Announcements asking for tenders: each tender submitted is an offer. (Tender constitute an offer if you accept the tender means you have accepted the offer) A Call for tender will usually be regarded as only inviting their submission and a response no more than an offer which may be accepted or rejected by the person making the call. There are two types of tenders: 1. A standing offer - tenders are invited for the supply of goods or services when required over a period of time; even if a tender is accepted the party inviting the tender is not bound to use their services a contract will only be formed if and when an order is made 2. A fixed tender the tender relates to a fixed quantity of goods or a specific supply of services (such as a single building project). Here the provision of a tender constitutes an offer, which may be accepted or rejected in the same way as a bid at an auction. Blackpool & Flyde Aero Club v Blackpool Borough Council[1990] ER FACTS - Blackpool Council invited Aero Club to tender (putting in an offer) for flights - Tenders due by certain date - Club submitted by due date but Council error recorded it late - Council did not consider Club s tender - Club claimed breach of contract said the Council promised to consider tenders - There was a contract involving a promise to consider tenders submitted on time. Bingham J:Where invitation to tender are provided to selected parties with clear procedures indicated then if the invitee submits a conforming tender before the deadline that the person is entitled to be sure that his tender will be opened and considered. In this case invitation to tender was an offer and club s timely submission an acceptance. Spencer v Harding (1870) LR 5 CP However, where the announcement indicates that the highest tender will be accepted, it might be the case that the call for the highest tender is the offer; therefore the highest tender is the acceptance.

10 - Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] 1 AC 207 c) Request for further information and statement of possible terms Offers must be distinguished from requests for further information or statements of possible terms. Request for further information: Not intended to have legal consequences Affirmative response will not give rise to a contract BUT an affirmative response to an offer will. Example: A request of a vendor about the lowest price at which he might be prepared to sell his house is not an offer to purchase at that price but merely a request for information A mere supply of information/statement of possible terms Where a statement is made only to provide information to the other party (not to accept an offer), it cannot be constructed as an offer Harvey v Facey [1893] Harvey v Facey [1893] AC 552 FACTS: P asked D at what price would be prepared to sell certain land. D replied with a certain figure the P treating it as an offer accepted. ISSUE: was there an offer to sell or simply a request? The reply of D rather than being an offer was merely a statement of the minimum price at which they may be willing to sell. However P s communication cannot count as an acceptance, it could be only an offer which on the facts the defendants had not accepted. Relevant factors to consider in classifying a communication include: - The likelihood of the communication being an offer - The terms of the communication involved - Whether parties contemplated - Involvement of lawyers Subsequent events d)termination of offers Why is it important to know whether an offer has been terminated? Once terminated an offer cannot be accepted, incapable of acceptance Generally speaking the following events will terminate an offer: 1. Revocation of the offer by the offeror;(a) 2. Rejection of the offer, or counter offer, by the offeree;(b) 3. Failure of the offeree to accept in time;(c) 4. Death of the offeror or offeree;(d) 5. Failure of a condition(e) After one of these events, the offeree cannot, thereafter, accept the offer and conclude agreement.

11 An offer can be terminated via #1: Revocation Revocation: withdrawal of an offer by the offeror. Communication by the offeror withdrawing the offer an offer can be withdrawn at anytime prior to acceptance any words or conduct which make clear the intention to revoke are sufficient. RULES FOR REVOCATION 1. No precise language is needed so long as from the language used, a reasonable person can decipher whether or not an offer is being withdrawn 2. Revocation will only become effective if it is actually communicated to the offeree. It doesn t matter how it reaches the offeree but it must actually reach the offeree: Case: Byrne & Co v Leon Van Tienhoven & Co (1880) A revocation must be communicated to the offeree and only becomes effective when that communication occurs The offeror communicates this decision to the offeree. 3. Promise to keep the offer open for a certain period of time will not affect this rule unless the person to whom the promise is made gives something of value (consideration) in return. Without the consideration, the promise to keep the offer open is not binding: Goldsborough Mort v Quinn (1910) To be effective revocation must take place prior to acceptance. once acceptance occurred this is no longer possible. An offer cannot be revoked if the offeror has granted the offeree an option covering it. an option involves a promise by the offeror not to revoke the offer made in exchange for consideration. 4. The postal acceptance rule does not apply to revocation of offer: Byrne & Co v Leon Van Tienhoven & Co (1880) 5. In certain circumstances communication of the revocation by a third party will be sufficient: Dickenson v Dodds (1876) The communication may occur directly or via third parties. 6. In unilateral contract, an offer may NOT be revoked if an offeree has begun to perform the necessary conditions to enable acceptance of the contract to be complete. Some conditions apply: see Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) Abbott v Lance (1860)

12 FACTS: Dickinson v Dodds (1876) 2 Ch D 463, English Court of Appeal Revocation by the third party / not to revoke only if there is consideration / revocation has to be before acceptance Dodds offers to sell house to Dickinson offer open until 9am June 12 Dickinson decides to accept but doesn t inform Dodds TP informs Dickinson that Dodds sold to another Dickinson seeks to accept, Dodds refuses to sell, claiming acceptance is too late 10 June 11 June 12 June FACTS: Dodds offered to sell house to Dickinson stating this offer to remain open until 9 am on 12 june. P decided to accept this offer on the morning of 11th june but didn t advice D because he believed that he had until 12th june. Later, on the 11th P was advised by a third party that D had sold the property to another person. P then sought to accept but D replied that it was too late, he had already sold the property. What is required for revocation? Revocation does not have to be expressed actual withdrawal of offer Sufficient if offeree knows that the offeror has changed their mind. Had there had been revocation? Dickson knew Dodds had changed his mind before communication of acceptance. It does not need to be direct or express. Why was promise to keep offer open not effective? There was no consideration provided for the promise no bargain Consideration needs to be present: e.g. I promise to keep that offer open if you pay me 200 dollars James LJ To revoke an offer it is not necessary that there be an express and actual withdrawal of it. However, it is necessary for the offeror in some way or other to let the offeree know that he has changed his mind regarding the offer. No contract was formed. D s promise to keep the offer open was not binding because it was a mere nudum pactum (no consideration given for it we ll come to that later). RESULT Court decided in Dodds favour decided they the offer had been revoked. Key Point (i) An offer can be revoked before it is accepted and "acceptance" after that time is ineffective. (ii) Revocation need not be direct or express; it will be effective if the offeree is

13 made aware of the offeror's change of mind. A communication via a 3rd party is effective - at least where authorised or where it results from, the offeror. (iii) A promise not to revoke will be effective only if supported by consideration. Byrne v Van Tienhoven (1880) LR 5 CPD 344, Court of Common Pleas - There must be communication of revocation for it to be effective - The postal rule does not apply to revocation. Van offered to sell goods to Bryne Van sent letter revoking offer Bryne telegraphs acceptance Bryne confirms acceptance by post Bryne receives letter of revocation 1 Oct 8 Oct 11 Oct 15 Oct 20 Oct FACTS: D s by letter offered to sell goods to P on 1 October. On 8th October before it was accepted D s posted a letter revoking the offer, which was received by P on the 20th October. In the meantime P received the letter of offer and telegraphed acceptance on 11th October. D refused to supply goods. Issue: What was the argument for saying there was no contract? There can be no contract if the offer is revoked before it is accepted even though this is not communicated. The reason is that there is no consent by both parties as is essential to constitute a contract between them. The courts findings: revocation must be communicated to be effective What is the postal rule: where a post is used for communicating acceptance a contract is completed when letter is posted (if post contemplated) However the postal rule does not apply to communication of revocation Result: the revocation was not communicated before acceptance it was ineffective and a contract came into existence on 11 October. The plaintiff won and obtained damages for breach of contract Note: Exception to the rule that an offer can be revoked at any time before acceptance. Shows there needs to be required consideration for the promise not to revoke.

14 International perspective UN Convention - CISG United Nations Convention on Contracts for the Sale of Goods (International) Note, the Convention applies only to certain International sales not purely domestic ones. We refer to the Convention for comparative reasons. It has been made part of Victorian Law by legislation but only operates where the contract is international you should not assume it operates for Australian domestic contracts. Article 16(1) - An offer may be revoked (until a contract is concluded) if revocation reaches offeree before acceptance is dispatched - Offer cannot be revoked (a) if offer states that it is irrevocable; or (b) if it was reasonable 1. for the offeree to rely on the offer as being irrevocable and 2. the offeree acted in reliance on the offer. How does the Convention differ from the Common Law? 1. Mere statement that an offer is irrevocable is effective (Dickinson v Dodds) 2. Can become irrevocable if reasonable for offeree to rely upon it as being irrevocable and offeree acts in reliance; for example, if used as basis for tender. #2: Rejection Rejection: Communication from the offeree indicating that they do not accept the offer Generally this will terminate an offer so that it cannot subsequently be accepted. It is possible for an offeree, having sent a letter of rejection, to change his/her mind so long as they accept before a letter of rejection arrives at the offeror s business/residence - If the offeree changes their mind to accept they can as long as the acceptance is reached/communicated before the rejection: Hyde v Wrench (1840) - Rejection becomes effective once it is communicated - Rejection can be made via counter-offer A counter offer amounts to a rejection of the original offer - Postal acceptance rule does Not apply to rejection EXCEPTION: Brambles Holdings Ltd v Bathurst City Council (2001) The offeree subsequently acted in a manner that would have caused the reasonable person in the position of the offeror to believe that the offer had been accepted United Nations Convention on Contracts for the Sale of Goods