Nature of Contract An agreement or set of promises that the law will enforce (i.e. for breach of which the law will provide a remedy) Definitional elements: An agreement (or a promise) Enforceability at law (or legal obligation to perform) Internationalisation of Contract Law International Restatement of Commercial Contract Law: UNIDROIT Principles of International Commercial Contracts 2010 uniform rules of contract law govern international commercial contracts (not just sale of goods) apply when parties agree that their contract will be governed by them Convention on Contracts for the International Sale of Goods (CISG): UN Convention on Contracts for the International Sale of Goods 1980 international trade convention (treaty) provides global uniform legal rules for contracts for international sale of goods has force of law in Victoria (displaces domestic law) schedule to Goods Act 1958 (Vic) When does CISG apply? Articles 1-6 Applies to contracts between private businesses (B2B) for the international sale of goods: between parties with places of business in different countries that have ratified CISG; or where rules of private international law (conflict of law rules) would apply the law of a country that has ratified CISG as governing the contract; or where parties opt in and choose CISG to apply (even if their businesses aren t in ratifying counties, e.g. by choosing the governing law of a country that has ratified CISG). 84 Countries, including Australia, have ratified CISG. Other examples: New Zealand, USA, China, Japan, and Germany (not United Kingdom) When doesn t CISG apply? Articles 1-6 not to domestic contracts for sale of goods (where both parties are in Australia), which are governed by Australian domestic law (case law and Goods Act 1958 (Vic)). not sales to consumers (B2C) (bought for personal, family or household use).
not contracts for services (nor mixed contracts where main part of contract is for labour / services). not sales of certain specified types of excluded goods e.g. by auction stocks, shares or money ships, vessels, hovercraft or aircraft electricity not when parties have agreed to exclude the operation of CISG. What does CISG cover? Article 4 governs most aspects of contract law: formation of contract rights and obligations of seller and buyer arising from the contract does not govern (left to domestic law): validity of a contract effect of contract on property of goods sold How is CISG interpreted? Article 7(1) CISG is to be interpreted with regard to its international character and the need to promote uniformity in its application and the observance of good faith in international trade There is a body of legislative history, case law (from courts around the world), scholarship and CISG Advisory Council opinions on the interpretation of CISG and courts may refer to them as aids in interpreting CISG CISG is therefore to be interpreted autonomously reference to domestic contract law (cases and legislation) is not permissible Elements of a contract The question Is there a contract? requires the establishment of 4 material elements: 1. an agreement between the parties (often expressed as offer and acceptance ); 2. consideration (each party must give something in return for the other s promise); 3. an intention to create legal relations between the parties; 4. the agreement must be complete and certain (i.e., there should not be any doubt as to exactly what each party is obliged to do in terms of the agreement). Entered into by people with capacity to contract
With some types of contract, certain formalities must be followed if the contract is to be legally enforceable (e.g. some contracts must be in writing). Agreement The traditional approach to establishing Agreement is through Offer and Acceptance. a) Offer made by one party (the Offeror ), and b) Acceptance of the offer by the other party (the Offeree ), which is then communicated to the offeror, OR c) No identifiable offer and acceptance required, provided the parties have manifested mutual assent and appear to have reached a concluded bargain (factual matrix look at totality of facts) Offer Agreement occurs when acceptance is communicated by the Offeree to the Offeror. But there are limits to this approach and there may be Agreement without Offer and Acceptance. Indication by one person to another of his or her willingness to enter into a contract with that other person on certain terms Q: What type of manifestation (statement or conduct) constitutes an offer? What if the offeror s outward manifestation is different from his or her actual intentions? A: The courts use objective standard, i.e. the view of a reasonable person in the offeree s position Bilateral v Unilateral contracts Bilateral Contract Most contracts 2 parties to the contract ( A and B ) Both parties exchange a promise or set of promises for each to do something in the future (e.g. A promises to transfer ownership of his car to B. In return, B promises to pay $100 to A) Both A and B s promises are executory (i.e. to be performed at some point after the contract is formed) Both parties have their specific obligation and rights Unilateral Contract Typically reward scenarios 2 parties to the contract ( A and B ) Only 1 promise is made (e.g. A promises to pay $100 to B if B finds A s lost puppy)
B accepts A s offer when B performs the stipulated task. Contract is formed when B completes performance. B is not obliged to perform, but A is obliged to pay when B has performed (no need to give notice of acceptance prior to performance). Thus, only one party has an obligation Acceptance is shown by full performance; if revoked when 95% complete, then there is no contract as acceptance is not complete At time contract formed, A s obligation/promise is executory and B s obligation has been executed (i.e. already performed). E.g. Carlill v Carbolic Smoke Ball; Mobil Oil v Wellcome Multilateral contract A contract between more than two parties. Most features of bilateral contracts apply, though there could be other special features as well Gibson v Manchester Council (UK) Facts: Gibson sought to enforce a terminated sale. Filled in application form and letter that Council may be prepared to sell Held Diplock J: May be prepared to sell and request for formal application make it impossible to construe this letter as a firm contractual offer Merely equate to the council setting out the financial terms on which the council may be prepared to consider a sale and purchase in due course i.e. not an invitation to accept the offer No reason to depart from conventional approach of identifying a clear offer and acceptance (though refers to the possibility of exceptional types of contracts which do not fit easily into the normal analysis of offer and acceptance ). Court of appeal (Denning) erred by departing from the conventional approach of offer and acceptance: look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have come to agreement on everything that was material Carlil v Carbolic Smoke Ball Co Facts: Carbolic Smoke Ball, claimed to prevent colds and flu. Mrs Carlill used the smoke ball as directed for four weeks, contracted the flu and claimed for the 100. Carbolic refused to pay and Mrs Carlill sued for breach of contract. Carbolic Co argued:
Advert was not a promise (or offer); was mere puff (i.e. they did not intend to contract (or be bound) Held: Objective test: would it appear to a reasonable member of the public that an offer was intended? Clearly an offer; not a puff (the 1000 deposit showed the sincerity of the promise to pay in the certain event) No offer can be made to the world at large (it was not made to anyone in particular): Held: It is possible to make offer to the public at large; although not made with anybody in particular, contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. Too vague and uncertain to be an offer - no time limit: Held: advert was not too vague or uncertain: time limit would be by reference to a reasonable time Mrs Carlill did not communicate acceptance: Held: acceptance occurs by performance. Acceptance need not be notified before performance; even if generally required to notify of acceptance, it is an exception if the person making the offer shows by his language and from the nature of the transaction that he notice of the acceptance is not required apart from notice of the performance No consideration moved from Mrs Carlill Held: consideration was: advantage to Carbolic gained by use of the ball to promote sales, and detriment to Carlill in her inconvenience in using the ball Problems with the offer and acceptance method Ticket cases Displayed goods with price tag in a shop Advert for an auction Invitation to submit tenders Parties acting as though there is a contract, but no clear identification of offer and acceptance Offers distinguished from invitations to treat Ticket cases Usual approach: the ticket is an offer which the passenger can accept or reject after he or she has had reasonable opportunity to accept or reject Mac Robertson v Commissioner of State Tax The airline s passengers reserve a seat on flight, pay fare, and receive a ticket Issue: Whether airline ticket is an agreement (for tax purposes)? Ticket contained conditions giving the airline the right to cancel a flight or a booking without incurring any liability
Held: Ticket did not record the terms of an agreement, but the terms of an offer which was subsequently accepted by conduct But reasoning differed: Barwick CJ Sweeping exemption and uncertainties of air travel left no room for obligation to carry the passenger Ticket merely an invitation to treat Passenger makes the offer by presenting at the airport, and airline accepts by carrying (i.e., no contract until passenger provided with a seat on airplane). The ticket is a receipt of the prepaid fare. Stephen J Conventional analysis - ticket constitutes an offer by the airline capable of acceptance or rejection by the passenger when he/she has had reasonable opportunity to read the condition. Thus ticket only records terms of an offer (not an agreement). Invitations to Treat Invitation to others to make an offer or enter into negotiations. Not an offer because lacks sufficient indication of willingness to be bound. Typical categories: Most advertisements (e.g. catalogues) (but note non contractual implications e.g. misleading and deceptive conduct) Goods displayed in shops (Boots) Goods offered for sale online (Electronic Transactions Act s14b) Property declared on the market at auctions (AGC v McWhirter) Invitations to tender (Harvela, Hughes Aircraft)
Categories of ITT Case Summary Shop sales Pharmaceutical Facts: Court of Appeal to determine when a sale occurred in a self-service pharmacy in order to determine whether sales Society of Great took place under the supervision of a registered pharmacist. Britain v Boots Cash Chemists Issue: Does a customer picking up a bottle of medicine from a shelf amount to accepting an offer to sell? Held: Goods displayed on the shelves merely an ITT A customer picking up a bottle of medicine from a shelf is merely an offer by the customer to buy, not an acceptance of an offer to sell. No sale is effected until the buyer s offer to buy is accepted at the checkout Customers are entitled to return and substitute articles they have chosen from the shelves; and thus, customers are regarded as making an offer when they present the items to the cashier and are not bound until the cashier has accepted that offer. Auctions AGC v McWhirter Is it an offer when the auctioneer says a property is on the market, or advertised for auction without reserve? General rule is that (whether or not auction is without reserve ): the auction is an invitation to treat; the bid is the offer; and the offer is accepted by the auctioneer s fall of the hammer. AGC v McWhirter (1977 NSWSC) This means that: the seller can withdraw the property before acceptance of a bid; the seller can refuse to accept a bid (doesn t have to sell to the highest bidder); and the buyer can withdraw a bid before acceptance. Facts: Mortgagee auction - vendor (mortgagee) able to reject highest bid from mortgagor. Vendor had not made an offer to sell despite auctioneer declaring that property was on the market (only an ITT) Held: An auction held without reserve does not alter the general rule and does not constitute an offer or bind the vendor to sell to the highest bidder
3 rd category: Tenders Used by prospective purchasers of goods or services to assess potential suppliers May be used for the sale of commercial or residential property Often used by governments contracting out public services The general rule is: request for tenders is an invitation to treat; tender is the offer But, there are exceptions Sometimes the call for tenders may be an offer: Harvela Investments Ltd v Royal Trust Co of Canada Sometimes the call for tenders will create a contract re: tender process Hughes Aircraft Systems International v Airservices Australia Harvela Investments Ltd v Royal Trust Co RT: we bind ourselves to accept the highest offer for our shares. Vendor s promise to accept the highest bid converted an otherwise invitation to treat into an offer H accepted the offer by making the highest fixed price bid a unilateral contract was formed. O s referential bid $X in excess of any other offer was invalid, because the specification of the invitation to submit tenders implied no referential bids. Hughes Aircraft Systems International v Airservices Australia Final two tenderers for acquisition of Air Traffic Control System signed letter setting out assessment criteria for the tender process. CAA deviated from the assessment criteria. H argued letter and offer created contractual relationship that obliged it to use the agreed assessment criteria. Held: A tender process contract came into force when the tender was lodged. CAA had breached the tender process contract. In certain circumstances, a mere request for tender ("RFT") for a main contract may give rise to a legally binding agreement. Where the party issuing the RFT is a public body, an implied obligation arises, requiring it to "deal fairly" with all the tenderers and conduct the tender assessment in accordance with its agreed criteria. There were 2 valid tender process contracts governing the tender process. CAA letter describing tender process and evaluation criteria (offer: not invitation to treat) accepted by Hughes signing
Formal request for tenders with similar terms (offer), accepted by Hughes lodging its tender Termination of an offer Revocation of offer by offeror Lapse of time: if no time prescribed after a reasonable time Death of offeror Failure of a condition/change of circumstances Rejection by offeree: rejection must be communicated 1. Withdrawal or Revocation Can occur at any time before acceptance, (even if the offeror promised to keep it open) Effective when it reaches (i.e. communicated to) the offeree Communication by whom? By what means may revocation be communicated? Dickinson v Dodds (1876) 2 Ch D 463 (not on Reading Guide) Held: Communication of the withdrawal of the offer can be made by any reliable third party. Option must have consideration to be binding. Exceptions: If consideration has been paid to keep the offer open options Goldsborough Mort If there is a promise to hold an offer for the international sale of goods open (CISG, Article 16) If a unilateral contract, performance (acceptance) has commenced, and there is an implied contract not to revoke or an estoppel Mobil Oil Options: Goldsborough Mort v Quinn Facts: Goldsborough paid for the right to purchase land within a week. Quinn purported to revoke the offer. Goldsbrough accepted within the week and sought specific performance Held: Offeree paid for the option to have one week to consider the offer. There was a contract to sell the land subject to a condition (ie exercise of the option). The offeror cannot withdraw before the expiration of the promised period. An option contract (a promise to keep an offer open, for value) is binding, and specific performance can be given. Unilateral Contracts Generally, a unilateral offer can be revoked before acceptance (even where offeree has begun performance), unless there is:
an implied contract not to revoke estoppel Mobil Oil v Wellcome Facts: Announcement by Mobil to franchisees that if scored >90% in Circle of Excellence program for 6 years - entitled to 9 free extra years on franchise. Plaintiff proceeded to get such scores but offer revoked after 4 years and program cancelled Held FFC: No offer - statement too vague and uncertain to be a contractual obligation Even if it were an offer, Mobil can revoke unilateral offer even if performance has commenced (no general proposition that an offeror can t revoke the offer once the offeree commences performance) But there may be times where there is an implied ancillary contract not to revoke the offer once the offeree commences performance (in which case revocation is still effective and offeror is liable to pay damages for breach of ancillary contract). No such implied ancillary contract here because: commencing performance is too vague after one day? the franchisees did not suffer any substantial detriment the franchisees were already bound to adhere to Mobil franchisee standards CISG: Revocation of offer (Article 16) Offer may be revoked before contract concluded if revocation reaches the offeree before acceptance. However, offer cannot be revoked: if it indicates that it is irrevocable (eg by stating fixed time for acceptance); or if it was reasonable for offeree to rely on the offer as being irrevocable and offeree has acted in reliance on the offer. 2. Lapse of Time Offer may be open for specified period will lapse at end of specified time If no period specified will lapse after a reasonable time What is reasonable will depend on the context apply objective test (depends on the nature of the transaction; circumstances might suggest what is a reasonable time frame) 3. Death of offeror Offer will lapse on death of Offeror: On notice of death - Fong v Cilli (1968) An offeree cannot accept an offer after the offeror s death if he knew of the death before the purported acceptance. Death of offeror lapsed the offer.
Implication that an offer may still be accepted before notice unless personal services required. Option contracts remain enforceable against deceased estate. The death of the Option Holder does not terminate the offer, and the option may be exercised by the representatives of his estate unless: Personal services of deceased required (i.e. contract requires exercise of personal skill and judgment); or Intent of option was that it not be exercisable after death (Laybutt v Amoco Australia Pty Ltd): Notice of exercise of the option was not correctly served and was therefore not enforceable against the deceased vendor s widow. 4. Failure of condition and changed circumstances The offeror may stipulate circumstances in which an offer will stay open or lapse (e.g. offer subject to board approval) may be express or implied If the offeror does not do so expressly, it may still be obvious to an objective observer that the offer was made on the basis of certain circumstances. It may be that if these circumstances change, that the offer lapses. Not every change in circumstances will cause the offer to lapse; Implied condition that an offer will lapse only on a fundamental change in the circumstances (Dysart) Look at offer as a unilateral transaction; focus on the objective intention of the offeror having regard to the terms of the offer and the circumstances in which it was made This is a high test, and a fundamental change is rare Dysart Timbers Limited v Nielsen Facts: N offered $250k to settle a dispute with D. D accepted the $250k, but then the court granted N leave to appeal and N changed its mind, deciding to continue with the appeal. Issue: Was the grant of leave such a fundamental change in circumstances that it killed the offer? Held: Offer still subsisted at the time Dysart accepted even despite the change in circumstance, and thus $250k to be paid There was no a fundamental change in circumstances Hence, offer did not lapse and there was a contract Both parties knew Court might decide leave application Nielsen could have expressly provided that the offer would terminate if leave application decided The high test was not met 5. Rejection & Counter Offer
Once an offer has been rejected it is no longer available for acceptance (rejection kills the offer) A counter offer is a rejection of the initial offer and results in a new offer (I ll pay $X instead) A mere inquiry is neither a counter offer nor a rejection (e.g. is there room for movement on the price?, would you accept $X? ) - Stevenson, Jaques & Co v McLean However, a rejected offer may in all the circumstances be treated as remaining open and available for acceptance on the basis of mutual assent manifested by conduct (per Heydon J, Brambles) Stevenson, Jacques & Co v McLean Facts: M offered to sell iron to S for 40s per ton, offer open till Monday. Monday S asked whether M would accept forty for delivery over two months, or if not, longest limit you would allow. M didn t answer and sold the iron to someone else. S later sent a telegram accepting the offer. Issue: Was S s enquiry a counter-offer to the effect that it had extinguished M s original offer? Held: Neither a rejection of the offer nor a counter-offer; it was a mere inquiry. Although M could revoke the offer, it had not done so and was still open and was accepted. M breached contract to sell to S. CISG: Rejection and counter-offer Article 19 A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. Offer what you need to know