LAWS1204 Lecture 2: refined contracts notes
What is a contract? – a legally binding agreement between two parties.
i. There must be an offer.
ii. There must be an acceptance.
iii. There must be consideration between the parties.
iv. The parties must have intended to create legal relations.
v. The parties must have the capacity to enter into legal relations.
vi. The agreement must be certain and complete.
Wh hast offe ad aeptae ee aadoed?
• Magill v Magill (2006) 226 CLR 551, per Heydon J at [210]: The law often develops doctrines which
are useful tools of analysis in standard instances, even though they are difficult to employ in other
instances. An illustration is the doctrine of offer and acceptance in relation to contract formation.
That works in many factual circumstances. The fact that it does not work well, and can only be
applied with some artificiality, in other sets of circumstances, has not been seen as a reason for its
wholesale abandonment.
Offer
• An offer is a statement that if accepted will create a binding contractual relationship between the
offeror and offeree.
• The offer must be promissory – that is, the offeror must intend that it can be converted into a
legally binding obligation by the act of acceptance.
• The absence of intent and quid pro quo deprives the statement of any semblance of a
contractual offer: Arfaras v Vosnakis [2016] NSWCA 65, [48].
• There must be an element of quid pro quo in the promissory statement --- Australian Woollen
Mills v Commonwealth.
• There must be a sufficient level of precision and clarity in the offer.
• Moreover, the statement must be viewed within its factual context.
• In James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland [2015] NSWSC 243, [433],
MDougall JA stated that it is necessary to find some express or implied promise in the offer that is
made, so that there may be found an acceptance, odut, efeale to that poise.
• An offer requires that there be a firm promise to do something or to not do something.
• Within a particular context, the supply of information about price, may constitute an offer, but
something more than information must be offered --- Pattinson v Mann
• The concept of reasonableness also applies to alleged offers --- see Pharmaceutical Society of
Great Britain v Boots Cash Chemists.
• Reasonableness precludes offers being unlimited --- Grainger & Sons v Gough.
• In Re Webster (1975) 132 CLR 270 Barwick CJ stated: There is a radical distinction drawn in the law
of contracts between the mere quotation of a price and an offer to sell and deliver.
• If a peso eel iuies of a a hat pie he is eithe sellig o illig to sell a
oodit ad the iuisito is ifoed of that pie, this …. will not, constitute an offer
hih is apale of aeptae …. The quotation will be no more than an … [Iitatio] to
treat.
Invitations to treat
• An invitation to treat is mere approach to others which instigates the dealing process and falls short
of being an offer.
• The general rule is that an advertisement is an invitation to treat – Mesaros v United States 845
F.2d 1576 (Fed Cir. 1988).
• However, an invitation to treat can become an offer if it is specific enough and if it shows the
intention to be an offer.
• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
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o Smith LJ (with whom Lindley and Bowen LJJ agreed) concluded that the advertisement
constituted "an offer intended to be acted upon, and when accepted and the conditions
performed constituted a binding promise on which an action would lie, assuming there
was consideration for that promise ...".
o Lindley LJ stated that "here is a distinct promise expressed in language which is perfectly
unmistakable".
• Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689 (Minn. 1957).
o The advertisement contained words of limitation and the presence of such words and the
requisite level of specificity meant that the advertisement was an offer rather than an
invitation to treat.
Mere puffery
• By mere puffery we mean statements that might well work to facilitate a contract, but which are so
far-fetched that no reasonable person would believe them.
• Leonard v Pepsico Inc 88 F Supp 2d (SDNY 1999)
Unilateral and bilateral contracts
• A unilateral contract is "a contract constituted by an offer of a promise for an act", in contrast to
the usual exchange of promises; the offeree accepts by performing her side of the bargain - only
oe paties oligatios ae eeuto.
• A bilateral contract is different from a unilateral contract because it is formed by the mutual
exchange of promises between the parties - the obligations of both parties are executory at this
point.
Categories of offer
1. Shop sales
• Where goods are displayed for sale in a shop, the default position at law is that there is an
invitation to treat. --- Boots Cash Chemist
• The rule applies to both self-service stores and to stores where the seller must assist the buyer.
• The rule on shop sales is set out in Boots and is informed by the principle of reasonableness.
• That is, it is unreasonable to regard the picking up and returning of goods from a trolley as a breach
of contract. --- Fisher v Bell
• Outside of a otat la settig, the od offe ight e itepeted oe lieall, patiulal
where specific legislation is concerned --- Goodis of Neto Gu [1959] SASR 295.
2. Tenders
• A tender process involves bidding by commercial parties for a particular contract.
• The parties who bid for the contract are unaware of the other bidders.
• There are in effect two contracts concerning the tender process.
• The first is a contract that arises from the terms of the tender process. This is a contract by
the vendor to run the tendering process in compliance with the terms set out in the call for
tenders. --- Hughes Aircraft Systems
• The second is the ultimate contract that results from the tendering process itself.
• A complying tender must at least be considered by the vendor --- Blackpool and Fylde Aero Club v
Blackpool Borough Council [1990] 1 WLR 1195.
• In Harvela Investments the vendor invited bids from two parties on the basis that the highest bid
would succeed.
• Harvela Investments suggests that the call for tenders sets the basis for a unilateral contract
because it is an offer by the vendor. By responding to the call for tenders the bidder accepts
and thereby binds the vendor to the terms of the call for tenders.
3. Auctions
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• The rules on auctions are similar to those on tenders. An auction is an invitation to treat. – Harris v
Nickerson (1873) LR 8 QB 286. Each bid is an offer. However, the auction itself will be governed by a
contract concerning how the auction is to be run.
• Ordinarily an auction will have a reserve price. Bids may be withdrawn before acceptance. The
auctioneer is not bound to sell to the highest bidder. --- British Car Auctions v Wright (1972) 1 WLR
1519
• In AGC v McWhirter it was held that an auction held without a reserve did not require that the
auctioneer had to sell to the highest bidder.
• Holland J: the auction without reserve was still an invitation to treat.
• In contrast, in Barry v Davies [2000] 1 WLR 1962 the highest bidder at an auction without a reserve
was entitled to damages.
• In Peter Smythe v Vincent Thomas [2007] NSWSC 844, Rein AJ made the following observations on
an eBay auction: In circumstances where both the buyer and seller agree to accept the terms and
conditions of eBay I see no difficulty in treating the parties as having accepted that the online
auction will have features that are both similar and different to auctions conducted in other
forums.
4. Ticket cases
• MacRobertson Miller Airline Services v Commissioner of State Taxation (1975) 133 CLR 125
• The ticket terms are provided after purchase of the ticket.
• The puhase of the tiket ostitutes a offe ad the passeges attedae ad suseuet
carriage on the day of travel constitutes the acceptance.
• The contract is not formed until the passenger is seated on the plane.
5. Clickwrap cases
• Pro CD v Zeidenberg. Judge Easterbrook: Transactions in which the exchange of money precedes
the communication of detailed terms are common.
• …. consider the purchase of an airline ticket. The traveller calls the carrier or an agent, is quoted a
price, reserves a seat, pays, and gets a ticket, in that order. The ticket contains elaborate terms,
which the traveller can reject by cancelling the reservation. To use the ticket is to accept the terms,
even terms that in retrospect are disadvantageous.
• ….. with a ticket to a concert. The back of the ticket states that the patron promises not to record
the concert; to attend is to agree. A theatre that detects a violation will confiscate the tape and
escort the violator to the exit.
• Oe ould aage thigs so that ee oetgoe sigs this poise efoe fokig oe the
money, but that cumbersome way of doing things not only would lengthen queues and raise prices
but also would scotch the sale of tickets by phone or electronic data service.
Revocation
• An offeror may revoke his offer at any time prior to acceptance. --- Financings Ltd v Stimson [1962]
3 All ER 386.
• However, the revocation must be communicated in order to be effective. – Stimson
• A revocation does not become effective simply because it is put into the post --- Byrne v Van
Tienhoven.
• In the case of IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205 [1], McPherson JA stated, [a] offer
may be withdrawn or revoked at any time before it is accepted. To be effective the withdrawal must
be communicated to the offeree.
• In Dickinson v Dodds (1876) LR 2 Ch D 463 the offeror sought to sell property to the offeree. A time
was set for acceptance of the offer. Prior to that time being reached a third party informed the
offeree that the offeror had sold the property to another party. The offeree then sought to accept
the original offer.
• The Court held that the acceptance was ineffective as the offeree was aware that the offeror no
longer wanted to sell him the property. In effect, the revocation does not have to be directly
communicated to the offeree.
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Document Summary
A legally binding agreement between two parties. The parties must have intended to create legal relations. The parties must have the capacity to enter into legal relations. An illustration is the doctrine of offer and acceptance in relation to contract formation. The fact that it does not work well, and can only be applied with some artificiality, in other sets of circumstances, has not been seen as a reason for its wholesale abandonment. (cid:863) Mills v commonwealth: there must be a sufficient level of precision and clarity in the offer, moreover, the statement must be viewed within its factual context. In james v royal bank of scotland; mckeith v royal bank of scotland [2015] nswsc 243, [433], Great britain v boots cash chemists: reasonableness precludes offers being unlimited --- grainger & sons v gough. The quotation will be no more than an [i(cid:374)(cid:448)itatio(cid:374)] to treat. (cid:863) Leonard v pepsico inc 88 f supp 2d (sdny 1999)
