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

2. © University of South Australia 2007 M-2 Section B Contract Law  What makes a valid contract?  What are its terms?  Will the courts enforce it?  What happens if there is a breach of it?  What if someone has been tricked?  Who can claim remedies under it?

3. © University of South Australia 2007 M-3 The Relationship between Business and Contract Law  Business transactions must be legally enforceable to be effective  The principles of contract law are the basis for ensuring the enforceability of business transactions

4. © University of South Australia 2007 M-4 Contract issues Different contracts exist Different contracts exist For example …  for sale of goods  labour hire  intellectual property  agency but the same principles apply to each of these.

5. © University of South Australia 2007 M-5 Types of contracts Distinguish between  ‘simple’ contracts and  ‘deeds’ under seal (these are unilateral ‘contracts’, for example, Wills). Most contracts, however, are simple contracts. Definition: A contract is an agreement which is legally enforceable

6. © University of South Australia 2007 M-6 Contract Law We begin with formation issues:  Intention to create legal relations  Offer and acceptance  Consideration

7. © University of South Australia 2007 M-7 Topic 1 Intention to create legal relations Presumptions: arrangements related to business ARE intended to create legal relations, but there may be some exceptions to that, for example, an ‘honourable pledge’ is not legally binding: Rose and Frank v Crompton

8. © University of South Australia 2007 M-8 Intention to create legal relations Presumptions: Family and social relations are presumed NOT to be legally enforceable  Balfour v Balfour  Cohen v Cohen

9. © University of South Australia 2007 M-9 Intention to create legal relations But in some cases they are legally valid: Wakelin v Ripley Riches v Hogben Intention to create legal relations is present when a family member makes extraordinary changes to life plans on the strength of a promise.

10. © University of South Australia 2007 M-10 Topic 2: Offer and acceptance  An offer must have been made and communicated and a complete and unqualified acceptance must have been communicated.

11. © University of South Australia 2007 M-11 continued Offer and acceptance: Offeree and offeror can be buyer or seller … it depends upon who makes the offer!

12. © University of South Australia 2007 M-12 Offer and acceptance  Distinguish invitation to ‘offer’ (treat) from an offer (e.g. catalogues)  What about goods that are set out in a display? Pharmaceutical Society v Boots Display on a shelf was not an “offer” as required by the law penalising “offering” certain drugs to the public. Therefore, no prosecution could succeed.

13. © University of South Australia 2007 M-13 Offer and acceptance  Negotiations are not an offer. “What is you lowest cash price?” Harvey v Facey  Auctions: the bid is the offer and thus can be withdrawn so long as that happens before the fall of the hammer: Payne v Cave

14. © University of South Australia 2007 M-14 Offers to the whole world An offer can be made to the whole world and accepted by unknown individuals: Carlill v Carbolic Smoke Ball Company Compare the promotions that are clearly meant as a joke: Leonard v Pepsico Inc

15. © University of South Australia 2007 M-15 Termination of offer Offers terminate …if rejected …if revoked before acceptance (Payne v Cave) or … if time lapses, when time is expressed to be “of the essence” or is deemed important: Dencio v Zivanovic (settlement of injury claim, heard nothing for 11 months) Ramsgate v Montefiore (heard nothing on shares for 5 months)

16. © University of South Australia 2007 M-16 Termination of offer Revocation must occur before acceptance for the revocation to be valid: Byrne v van Tienhoven D offered to sell but heard no acceptance. Revoked the offer but by that time the acceptance had been sent. Contract valid.

17. © University of South Australia 2007 M-17 Termination of offer But communication of revocation need not be from the offeror: Dickinson v Dodds D1 was offered a house to buy by D2 but heard nothing. Then heard from TP house had been sold by D2. D1 purported to accept. Held: no contract.

18. © University of South Australia 2007 M-18 Termination A counter offer is deemed to be a rejection of the offer Hyde v Wrench Farm sale: counter-offer rejected, then tried to accept the first offer. Held: no valid acceptance as the C-O was a rejection of the first offer and would have to be offered again.

19. © University of South Australia 2007 M-19 Acceptance Communication vital  By words  In writing  Relevant conduct Brogden v Metropolitan Railway No formal document (beyond a draft) was executed between the parties, but both parties kept acting according to the draft. Held: the conduct of both parties led to the conclusion that there had been offer and acceptance, even if it had not happened formally.

20. © University of South Australia 2007 M-20 Acceptance Conditional acceptance is not acceptance. Agreements made “subject to formal contract” are usually not final Masters v Cameron Farm sale didn’t go ahead. Was M entitled to his deposit back? Only if no contract. Held: Court agreed. There was no contract, because the terms were too conditional and therefore uncertain.

21. © University of South Australia 2007 M-21 Acceptance  Acceptance must be in reliance of the offer R v Clarke That is, no reward is payable if the person did the required act unaware of the fact of the reward.

22. © University of South Australia 2007 M-22 Acceptance  Acceptance upon postage by offeree (“postal rule”), not the actual time of receipt, unless there has been a specific direction by the offeror.  “Receipt rule’ for faxes and telexes or other instantaneous means: Entores v Miles ‘Postal rule’ didn’t apply to contract with Holland company. The acceptance happened when the fax arrived back in the UK and that’s where the contract was formed.

23. © University of South Australia 2007 M-23 Acceptance  Email: now deemed accepted when it comes to the attention of the addressee (offeror), i.e. when the sign goes up “you’ve got mail”. HK Electronic Transactions Ordinance s 19: Offer deemed accepted when “accepted by information system” outside of the sender’s control.

24. © University of South Australia 2007 M-24 Topic 3: Consideration Most contracts see the consideration caught up in the acceptance and the payment for the goods or service. The concept of consideration is most valuable when determining which promises the law will enforce.

25. © University of South Australia 2007 M-25 Consideration Something must be given in order to enforce the promise…an act (such as a deposit) or a promise. Every promise needs a new consideration, especially if it occurs after the contract is completed: Roscorla v Thomas

26. © University of South Australia 2007 M-26 Consideration The consideration does not need to be of high monetary value. It can even be something token: Chappell v Nestle

27. © University of South Australia 2007 M-27 Consideration continued BUT the consideration needs to have come from the person seeking to rely upon the promise (the “promisee”) and be given to the person who made the promise (the “promisor”). It must be of some benefit to the promisor OR a benefit to a third party with the permission of the promisor. Coulls v Bagot’s Trustee Held: that a promise by the trustee company was enforceable by the wife even though her husband (the joint tenant and joint promisee) had died.

28. © University of South Australia 2007 M-28 Consideration continued Consideration can only be something that you were not already under an obligation (a law or a contractual obligation) to do anyway. Stilk v Myrick (sailors had deserted, ship now under staffed) Hartley v Ponsonby (sailors in jail, ship now officially unseaworthy!)

29. © University of South Australia 2007 M-29 Consideration continued Foakes v Beer B paid F a debt by installments. F agreed not to sue. F later sued for the interest. Could B enforce the promise not to sue? Held: No. Doing what B was required to do is not consideration for F’s promise not to sue. New consideration was needed.

30. © University of South Australia 2007 M-30 Consideration and promissory estoppel Consideration may be found even in rather unusual circumstances, when ‘promissory estoppel’ comes into play: Central London Properties v High Trees House

31. © University of South Australia 2007 M-31 Consideration Promissory estoppel: Je Maintiendrai v Quaglia Here, promissory estoppel was used as a ‘shield’ to prevent Q claiming back rental. The consideration (to hold Q to his promise to accept a lower rental) was JM’s not going elsewhere to rent, and thus cutting off other options.

32. © University of South Australia 2007 M-32 Consideration continued Promissory estoppel (continued) Waltons Stores v Maher This case is authority for the proposition that promissory estoppel may be used as a ‘sword’ as well, that is, to claim a remedy where detriment has been suffered. Held: Walton’s could not go back on a promise to rent from Maher if Maher built a shopping centre on the strength of Walton’s assurances.

33. © University of South Australia 2007 M-33 Consideration continued Exception to the need for consideration: deeds, such as wills and deeds of gift. (These are unilateral contracts)

34. © University of South Australia 2007 M-34 SUMMARY A validly formed contract is one that has  An intention to be legally bound by it  A valid offer which has not been revoked, and an acceptance in the form required by the offeror  Consideration. Next we go on to look at the TERMS of the contract followed by issues that may affect the enforceability of the contract.