© university of south australia 2007 m-1 introduction to law session 2 rick sarre & karen earle

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M-1 © University of South Australia 2007 INTRODUCTION TO LAW SESSION 2 RICK SARRE & KAREN EARLE

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Page 1: © University of South Australia 2007 M-1 INTRODUCTION TO LAW SESSION 2 RICK SARRE & KAREN EARLE

M-1© University of South Australia 2007

INTRODUCTION TO

LAW

SESSION 2 RICK SARRE & KAREN EARLE

Page 2: © University of South Australia 2007 M-1 INTRODUCTION TO LAW SESSION 2 RICK SARRE & KAREN EARLE

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Section B Contract Law

What makes a valid contract?What makes a valid contract? What are its terms?What are its terms? Will the courts enforce it?Will the courts enforce it? What happens if there is a breach of What happens if there is a breach of

it?it? What if someone has been tricked?What if someone has been tricked? Who can claim remedies under it?Who can claim remedies under it?

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The Relationship between Business and Contract Law

Business transactions must be legally enforceable to be effectiveThe principles of contract law are the basis for ensuring the enforceability of business transactions

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Contract issues

Different contracts exist Different contracts exist

For example …For example … for sale of goods for sale of goods labour hirelabour hire intellectual property intellectual property agencyagency

but the same principles apply to each of these.but the same principles apply to each of these.

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Types of contracts

Distinguish betweenDistinguish between ‘ ‘simple’ contracts and simple’ contracts and ‘ ‘deeds’ under seal (these are unilateral deeds’ under seal (these are unilateral ‘contracts’, for example, Wills). ‘contracts’, for example, Wills).

Most contracts, however, are simple Most contracts, however, are simple contracts.contracts.

Definition:Definition: A contract is an agreement A contract is an agreement which is legally enforceablewhich is legally enforceable

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Contract Law

We begin with We begin with formationformation issues: issues: Intention to create legal relationsIntention to create legal relations Offer and acceptanceOffer and acceptance ConsiderationConsideration

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Topic 1 Intention to create legal relations

Presumptions: arrangements related to Presumptions: arrangements related to business ARE intended to create legal business ARE intended to create legal relations, but there may be some relations, but there may be some exceptions to that, for example, an exceptions to that, for example, an ‘honourable pledge’ is not legally ‘honourable pledge’ is not legally binding:binding:

Rose and Frank v CromptonRose and Frank v Crompton

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Intention to create legal relations

Presumptions: Presumptions:

Family and social relations are presumed Family and social relations are presumed NOT to be legally enforceable NOT to be legally enforceable Balfour v BalfourBalfour v BalfourCohen v CohenCohen v Cohen

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Intention to create legal relations

But in some cases they are legally But in some cases they are legally valid:valid:Wakelin v RipleyWakelin v RipleyRiches v HogbenRiches v HogbenIntention to create legal relations Intention to create legal relations isis present when a family member makes present when a family member makes extraordinary changes to life plans on extraordinary changes to life plans on the strength of a promise.the strength of a promise.

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Topic 2: Offer and acceptance

An offer must have been An offer must have been made and communicated and made and communicated and a complete and unqualified a complete and unqualified acceptance must have been acceptance must have been communicated.communicated.

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continued

Offer and acceptance: Offer and acceptance: Offeree and offeror can be Offeree and offeror can be buyer buyer oror seller … it depends seller … it depends upon who makes the offer!upon who makes the offer!

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Offer and acceptance

Distinguish invitation to ‘offer’ (treat) Distinguish invitation to ‘offer’ (treat) from an offer (e.g. catalogues)from an offer (e.g. catalogues) What about goods that are set out in a What about goods that are set out in a display?display?Pharmaceutical Society v BootsPharmaceutical Society v BootsDisplay on a shelf was not an “offer” as Display on a shelf was not an “offer” as required by the law penalising “offering” required by the law penalising “offering” certain drugs to the public. Therefore, no certain drugs to the public. Therefore, no prosecution could succeed.prosecution could succeed.

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Offer and acceptance

Negotiations are not an offer. Negotiations are not an offer. “What is you lowest cash price?”“What is you lowest cash price?”Harvey v FaceyHarvey v Facey Auctions: the Auctions: the bidbid is the offer and is the offer and thus can be withdrawn so long as thus can be withdrawn so long as that happens before the fall of the that happens before the fall of the hammer:hammer:Payne v CavePayne v Cave

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Offers to the whole world

An offer can be made to the whole An offer can be made to the whole world and accepted by unknown world and accepted by unknown individuals:individuals:

Carlill v Carbolic Smoke Ball Carlill v Carbolic Smoke Ball CompanyCompany

Compare the promotions that are Compare the promotions that are clearly meant as a joke:clearly meant as a joke:

Leonard v Pepsico IncLeonard v Pepsico Inc

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Termination of offerOffers Offers terminateterminate ……if rejectedif rejected……if revoked before acceptance if revoked before acceptance (Payne v Cave)(Payne v Cave)or or … … if time lapses, when time is expressed to be if time lapses, when time is expressed to be

“of the essence” or is deemed important:“of the essence” or is deemed important:Dencio v Zivanovic Dencio v Zivanovic (settlement of injury claim, (settlement of injury claim,

heard nothing for 11 months)heard nothing for 11 months)Ramsgate v Montefiore Ramsgate v Montefiore (heard nothing on (heard nothing on

shares for 5 months)shares for 5 months)

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Termination of offer

Revocation must occur Revocation must occur beforebefore acceptance for the revocation to be acceptance for the revocation to be valid:valid:

Byrne v van TienhovenByrne v van TienhovenD offered to sell but heard no D offered to sell but heard no

acceptance. Revoked the offer but acceptance. Revoked the offer but by that time the acceptance had by that time the acceptance had been sent. Contract valid.been sent. Contract valid.

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Termination of offer

But communication of revocation But communication of revocation need not be from the offeror:need not be from the offeror:

Dickinson v DoddsDickinson v DoddsD1 was offered a house to buy by D2 D1 was offered a house to buy by D2

but heard nothing. Then heard but heard nothing. Then heard from TP house had been sold by from TP house had been sold by D2. D1 purported to accept.D2. D1 purported to accept.

Held: no contract.Held: no contract.

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TerminationA counter offer is deemed to be a A counter offer is deemed to be a

rejection of the offerrejection of the offerHyde v WrenchHyde v Wrench

Farm sale: counter-offer rejected, then Farm sale: counter-offer rejected, then tried to accept the first offer.tried to accept the first offer.

Held: no valid acceptance as the C-O was Held: no valid acceptance as the C-O was a rejection of the first offer and would a rejection of the first offer and would have to be offered again.have to be offered again.

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AcceptanceCommunication vitalCommunication vital By wordsBy words In writingIn writing Relevant conductRelevant conductBrogden v Metropolitan RailwayBrogden v Metropolitan RailwayNo formal document (beyond a draft) was No formal document (beyond a draft) was

executed between the parties, but both parties executed between the parties, but both parties kept acting according to the draft. Held: the kept acting according to the draft. Held: the conduct of both parties led to the conclusion conduct of both parties led to the conclusion that there had been offer and acceptance, that there had been offer and acceptance, even if it had not happened formally.even if it had not happened formally.

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Acceptance

Conditional acceptance is not acceptance. Conditional acceptance is not acceptance. Agreements made “subject to formal Agreements made “subject to formal contract” are usually not finalcontract” are usually not final

Masters v CameronMasters v Cameron

Farm sale didn’t go ahead. Was M entitled to Farm sale didn’t go ahead. Was M entitled to his deposit back? Only if no contract. his deposit back? Only if no contract.

Held: Court agreed. There was no contract, Held: Court agreed. There was no contract, because the terms were too conditional and because the terms were too conditional and therefore uncertain.therefore uncertain.

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Acceptance

Acceptance must be in reliance of Acceptance must be in reliance of the offerthe offer

R v ClarkeR v Clarke

That is, no reward is payable if the That is, no reward is payable if the person did the required act person did the required act unaware of the fact of the reward.unaware of the fact of the reward.

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Acceptance Acceptance upon postage by offeree (“postal Acceptance upon postage by offeree (“postal

rule”), not the actual time of receipt, unless rule”), not the actual time of receipt, unless there has been a specific direction by the there has been a specific direction by the offeror.offeror.

““Receipt rule’ for faxes and telexes or other Receipt rule’ for faxes and telexes or other instantaneous means: instantaneous means: Entores v MilesEntores v Miles

‘‘Postal rule’ didn’t apply to contract with Postal rule’ didn’t apply to contract with Holland company. The acceptance happened Holland company. The acceptance happened when the fax arrived back in the UK and when the fax arrived back in the UK and that’s where the contract was formed.that’s where the contract was formed.

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Acceptance

Email: now deemed accepted when it Email: now deemed accepted when it comes to the attention of the addressee comes to the attention of the addressee (offeror), i.e. when the sign goes up (offeror), i.e. when the sign goes up “you’ve got mail”. “you’ve got mail”. HK Electronic HK Electronic Transactions OrdinanceTransactions Ordinance s 19: s 19:

Offer deemed accepted when “accepted Offer deemed accepted when “accepted by information system” outside of the by information system” outside of the sender’s control.sender’s control.

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Topic 3: Consideration

Most contracts see the consideration Most contracts see the consideration caught up in the acceptance and the caught up in the acceptance and the payment for the goods or service. The payment for the goods or service. The concept of consideration is most concept of consideration is most valuable when determining which valuable when determining which promises the law will enforce.promises the law will enforce.

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Consideration

Something must be given in order to Something must be given in order to enforce the promise…an act (such as enforce the promise…an act (such as a deposit) or a promise. Every a deposit) or a promise. Every promise needs a new consideration, promise needs a new consideration, especially if it occurs after the especially if it occurs after the contract is completed:contract is completed:

Roscorla v ThomasRoscorla v Thomas

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Consideration

The consideration does not need to be The consideration does not need to be of high monetary value. It can even of high monetary value. It can even be something token:be something token:

Chappell v NestleChappell v Nestle

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Consideration continuedBUT the consideration needs to have come from BUT the consideration needs to have come from the person seeking to rely upon the promise (the the person seeking to rely upon the promise (the “promisee”) and be given to the person who made “promisee”) and be given to the person who made the promise (the “promisor”).the promise (the “promisor”).It must be of some benefit to the promisor OR a It must be of some benefit to the promisor OR a benefit to a third party with the permission of the benefit to a third party with the permission of the promisor.promisor.Coulls v Bagot’s TrusteeCoulls v Bagot’s TrusteeHeld: that a promise by the trustee company was Held: that a promise by the trustee company was enforceable by the wife even though her husband enforceable by the wife even though her husband (the joint tenant and joint promisee) had died.(the joint tenant and joint promisee) had died.

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Consideration continued

Consideration can only be something Consideration can only be something that you were not already under an that you were not already under an obligation (a law or a contractual obligation (a law or a contractual obligation) to do anyway. obligation) to do anyway. Stilk v Myrick (Stilk v Myrick (sailors had deserted, ship sailors had deserted, ship now under staffed)now under staffed)

Hartley v Ponsonby Hartley v Ponsonby (sailors in jail, ship (sailors in jail, ship now officially unseaworthy!)now officially unseaworthy!)

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Consideration continued

Foakes v BeerFoakes v Beer

B paid F a debt by installments. F agreed B paid F a debt by installments. F agreed not to sue. F later sued for the interest. not to sue. F later sued for the interest. Could B enforce the promise not to sue?Could B enforce the promise not to sue?

Held: No. Doing what B was required to Held: No. Doing what B was required to do is not consideration for F’s promise not do is not consideration for F’s promise not to sue. New consideration was needed.to sue. New consideration was needed.

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Consideration and promissory estoppel

ConsiderationConsideration may be found even may be found even in rather unusual circumstances, in rather unusual circumstances, when ‘promissory estoppel’ when ‘promissory estoppel’ comes into play:comes into play:Central London Properties v High Central London Properties v High

Trees HouseTrees House

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Consideration

Promissory estoppel: Promissory estoppel: Je Maintiendrai v QuagliaJe Maintiendrai v QuagliaHere, promissory estoppel was used as Here, promissory estoppel was used as a ‘shield’ to prevent Q claiming back a ‘shield’ to prevent Q claiming back rental. The consideration (to hold Q to rental. The consideration (to hold Q to his promise to accept a lower rental) his promise to accept a lower rental) was JM’s not going elsewhere to rent, was JM’s not going elsewhere to rent, and thus cutting off other options.and thus cutting off other options.

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Consideration continuedPromissory estoppel (continued)Promissory estoppel (continued)Waltons Stores v MaherWaltons Stores v MaherThis case is authority for the proposition This case is authority for the proposition that promissory estoppel may be used as a that promissory estoppel may be used as a ‘sword’ as well, that is, to claim a remedy ‘sword’ as well, that is, to claim a remedy where detriment has been suffered.where detriment has been suffered.Held: Walton’s could not go back on a Held: Walton’s could not go back on a promise to rent from Maher if Maher built a promise to rent from Maher if Maher built a shopping centre on the strength of Walton’s shopping centre on the strength of Walton’s assurances.assurances.

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Consideration continued

Exception to the need for Exception to the need for consideration: deeds, such as consideration: deeds, such as wills and deeds of gift. (These wills and deeds of gift. (These are unilateral contracts)are unilateral contracts)

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SUMMARYA validly formed contract is one that has A validly formed contract is one that has An intention to be legally bound by itAn intention to be legally bound by it A valid offer which has not been revoked, A valid offer which has not been revoked, and an acceptance in the form required by and an acceptance in the form required by the offerorthe offeror Consideration.Consideration.Next we go on to look at the TERMS of the Next we go on to look at the TERMS of the contract followed by issues that may affect contract followed by issues that may affect the enforceability of the contract.the enforceability of the contract.