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Week 2 Law of Contract Revision. Revision Sources of Law Separation of Powers Division of Powers Court Hierarchy. Sources of Law. Parliament. The Courts. Federal. State. Equity. Common Law. Trade Practices Act. Fair Trading Act. Promissory estoppel. Unconscionable Conduct.

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Week 2 Law of Contract Revision

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Week 2

Law of Contract


  • Sources of Law
  • Separation of Powers
  • Division of Powers
  • Court Hierarchy

Sources of Law


The Courts




Common Law

Trade Practices Act

Fair Trading Act

Promissory estoppel

Unconscionable Conduct

Contract Law


Privy Council



Appeals Abolished

High Court

Court of Appeal

Federal Court

Family Court

Supreme Court

County Court

Federal Magistrates Service

Magistrates Court

Revision (cont.)
  • Precedent
    • 2 types
    • Describe
    • 2 parts of a decision
  • Rule of Law
  • Citing decisions
    • Smith v Jones (2001) 145 CLR 203, 207
    • Smith v Jones [1945] 2 All ER 203, 207
    • Smith v Jones (2001) HCA 203, [20]
Revision (cont.)
  • Statutory Interpretation
    • 3 approaches
    • Current approach
      • Why
    • Aids to interpretation
    • Rules of interpretation
  • Proof
    • Burden of proof
    • Presumptions
Week 2

Law of Contract

Development, Intention & Offer

Development of Contract Law
  • Developed in England pre 1900
  • Laissez faire economic environment
  • Underlying common law principles
    • Freedom of Contract
    • Equality of bargaining power
  • Courts reluctant to interfere unless
    • Duress
    • Illegal
Recent Developments
  • Equal bargaining power is a myth
  • Courts developed equitable principles
    • Unconscionable conduct
    • Unjust enrichment
    • Economic Duress
    • Promissory estoppel
Recent Developments (Cont.)
  • Consumer protection legislation
    • Trade Practices Act 1975
    • Fair Trading Acts
    • Insurance Contracts Act 1987
    • Credit Codes
    • Licensing Acts (e.g. Builders Licensing Act)
    • Amendments to Sale of Goods Act
  • An agreement between two or more persons that will be enforced by law
  • May be
    • In writing
    • Oral
    • Partly in writing and partly oral
  • Contracts need not be in writing
  • Exceptions
    • Sale of Land
    • Guarantees
    • Credit contracts
    • Other statutory requirements
Analysing a Contract

Is there a contract?

What are the terms?

Is it valid & enforceable?

Has it been discharged?

Has there been a breach?

Six Elements
  • Contractual Capacity
  • Offer
  • Acceptance
  • Intention to create a contract
  • Consideration
  • Certainty

The elements are not always clear

Intention to Contract
  • Parties must intend their agreement to be legally binding i.e. enforceable by a court
  • An intention to be morally binding is not enough
  • Objective test
  • Distinction between
    • Social/domestic agreements
    • Commercial agreements
  • Subjective intention

The person’s actual state of mind

  • Objective intention

Concludes, on the basis of what a person said and did, what a reasonable person in the same circumstances would have intended

  • Contract law uses objective tests
Domestic Agreements
  • Court presumes that parties did not intend to contract
  • Presumption may be rebutted
    • Todd v Nicholls (S&O p94)
    • Roufos v Brewster (S&O p94)
Domestic Agreements (cont.)
  • Court will look at
    • Terms of agreement
    • Circumstances surrounding the agreement
    • Effect of the agreement on the parties
    • Parties conduct subsequent to agreement
Commercial Agreements
  • Courts presume that the parties intended to contract
  • Clear words are needed to rebut the presumption
  • Onus is on party seeking to disprove the contract
  • Rose & Frank v J R Crompton (S&O p95)
  • Edwards v Skyways (S&O p95)
Commercial Agreements (Cont.)
  • Contrast with Clauses excluding courts jurisdiction which are are invalid
  • Letters of Comfort
    • Kleinworth Benson v Malaysia Mining (S&O p96)
    • Banque Brussels Lambert v Australian National Industries (S&O p97)
Commercial Agreements (Cont.)
  • Heads of Agreement/Letters of Intent
    • Air Great Lakes v K S Easter (S&O p98)
    • Coal Cliff Collieries v Sijehama (S&O p98)
  • “Without prejudice” documents
  • Specific legal meaning
  • An offer exists only where a reasonable person would conclude on the facts that the person was willing to be bound in a court of law
  • Distinguish
    • Indication of future conduct
    • Invitation to treat
    • Negotiations
Indication of Future Conduct
  • A mere statement of a present intention to do something in the future is not an offer
    • Harvey v Facey (S&O p 70)
    • Australian Woollen Mills v Commonwealth (S&O p71)
    • Harris v Nickerson (S&O p71)
    • Kelly v Caledonian Coal Co (S&O p71)
Invitation to Treat
  • An invitation to
    • Negotiate
    • Make an offer

is not an offer but an “Invitation to Treat”

  • The distinction lies in the objective intention of the person making the offer or invitation to treat.
Invitation to Treat
  • Retail Displays
  • Catalogues
  • Advertisements
  • Auctions
  • Tenders
Retail Displays
  • Fisher v Bell (S&O p72)
  • Pharmaceutical Society v Boots (S&O p73)
  • In most circumstances the retailer does not make an offer by displaying goods for sale, even where the goods are marked with a price
  • Grainger v Gough (S&O p73)
  • If the catalogue publisher was making an offer then it would be bound by every acceptance even if their stock was exhausted.
  • Depends on circumstances
  • Carlill v Carbolic Smoke Ball Co (S&O p74)
  • But note legislative restrictions e.g. Trade Practices Act
  • Bidder makes the offer
  • Auctioneer accepts
  • S64 Sale of Goods Act (Vic)
  • Auctioneer announces terms at start
  • Anyone who bids then accepts the auctioneers offer as to terms
  • Person submitting the tender makes the offer
  • Body calling for tenders accepts any tender
    • Not bound to accept lowest
  • BUT, the request for tenders may be an offer to deal with tenders in a certain manner
    • Hughes Aircraft v Aeroservices Australia (S&O p76)
    • Harvela Investments v Royal Trust Co of Canada (S&O p76)
  • An offer will not arise merely because parties have reached agreement on one aspect of the deal
  • Implied (or express) understanding that parties not bound until formal contract executed
  • Heads of Agreement
Fate of An Offer
  • Withdrawn by offeror
  • Accepted by offeree
  • Rejected by offeree
  • Lapse due to passing of time
  • Lapse due to death of offeror or offeree
  • Lapse due to failure of condition precedent
Withdrawing an Offer
  • Cannot be withdrawn after accepted
  • A contract is made when the offer is accepted
  • The withdrawal of the offer must be communicated to the offeree
  • Special cases:
    • Unilateral offers
    • Options cannot be withdrawn
Withdrawing an Offer Before Acceptance
  • Generally, an offeror may withdraw an offer at any time before acceptance
  • Routledge v Grant (S&OR p78)
  • But, options cannot be withdrawn
    • an option is a separate enforcable obligation and cannot be withdrawn
    • Exists where the offeree has given consideration to keep an offer open
    • Goldborough Mort v Quinn (S&OR p 80)
Withdrawal Must be Communicated
  • Offeror must let the offeree know that the offer is withdrawn
  • Byrne & Co v Tienhoven & Co S&OR p79)
  • Offeror does not have to communicate withdrawal personally
  • Would a reasonable person in the position of the offeree conclude that the offer had been withdrawn?
Withdrawing a Unilateral Offer
  • Involves a unilateral promise e.g. Carllil v Carbolic Smoke Ball Co (S&O p74)
  • If offeree has acted on the promise then offeror cannot withdraw until offeree has had a reasonable opportunity to complete
Rejecting an Offer
  • Once rejected, an offer cannot be accepted
  • May be rejected expressly or by implication
  • Implied
    • Offeree’s actions are inconsistent with an intention to accept
Rejecting An Offer (Cont.)
  • A counter offer is a rejection
    • Hyde v Wrench (S&O p81)
    • Any material alteration is a counter offer
      • Restating the offer when accepting is not a counter offer
      • Turner Kempson v Camm (S&O p81)
Rejecting An Offer (Cont.)
  • A counter offer is a rejection (cont.)
    • Asking for clarification is not a counter offer
      • Reasonable person test
      • examine all circumstances
Lapse of Offer
  • Due to death of either party unless
    • An option; and
    • Does not involve personal skill or service by the deceased
  • Due to failure of condition precedent
  • Due to time
    • Express time limit
    • Otherwise, offer remains open for a reasonable time
Lapse of Offer (Cont.)
  • Due to time (Cont.)
    • What is reasonable time depends on:
      • Method by which offer made
      • Nature of the transaction
      • Terms of Proposed Contract
      • Actions of parties between offer & purported acceptance
      • Intimations as to time by offeror