1. Formation of a contract

2. A contract is an agreement that is enforceable at law.

3. Characteristics of a Contract
1. There will be a promise or promises.
2. They will be made by “parties to the contract”.
3. They will create an obligation.
4. That obligation will be enforceable at law.
5. Often found in negotiations, rather than a formal document.

4. OFFER/ACCEPTANCE ANALYSIS
+ = AGREEMENT
ACCEPTANCE
INTENTION
CONSIDERATION
CAPACITY

5. INTENTION TO CREATE LEGAL RELATIONS
“To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly”
Atkin LJ in Rose & Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 at 293

6. Rebuttable presumptions
In social and domestic agreements there is a presumption against legal obligations
Balfour v Balfour [1919] 2 KB 571
Cohen v Cohen (1929) 42 CLR 91
Jones v Padavatton [1969] 1 WLR 328
The presumption is rebuttable
Merritt v Merritt [1970] 1 WLR 1211
Wakeling v Ripley (1951) 51 SR (NSW) 183

7. Balfour v Balfour
“There are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or where there is an offer and acceptance of hospitality. Nobody would suggest in ordinary circumstances that those agreements result in what we know as a contract, and one of the most usual forms of agreement which does not constitute a contract appear to me to be the arrangements which are made between husband and wife…they are not contracts because the parties did not intend that they should be attended by legal consequences.”
Atkin LJ at 578

8. Rebuttable presumptions
In business or commercial agreements, there is a rebuttable presumption that the parties did intend to create legal obligations
Carlill v Carbolic Smoke Ball
Rose & Frank Co v Crompton & Bros Ltd [1925] AC 445
Honour clause

9. Presumptions
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Use of presumptions of limited value
Intention to create legal relations is always a matter to be proved
Objective test

10. OFFER/ACCEPTANCE ANALYSIS
+ = AGREEMENT
ACCEPTANCE
INTENTION
CONSIDERATION
CAPACITY

11. Offer
“the indication by one person to another of his or her willingness to enter into a contract with that person on certain terms”
Carter and Harland, “Contract Law in Australia” 4th edn p28

12. Essential features of an offer:
The offeror must intend to be bound by the offer
Distinguish from request for information or invitation to treat
The offer must be communicated to the offeree
The offer may be made to one person, a class of persons, or the whole world
The offer must contain enough information (certainty) to allow a binding contract to come into existence

13. Intention to be bound An offer is not:
A request for the supply of information
Harvey v Facey [1893] AC 552
An invitation to treat
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1QB 401.
Gibson v Manchester City Council [1979] 1AllER 972
Grainger & Son v Gough [1896] AC 325

14. Harvey v Facey
“the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at the lowest price.”
Lord Morris at 556

15. Grainger v Gough
“transmission of such a price list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited.”
Lord Herschell at 334

16. Examples of Invitations to Treat
advertisements/circulars
price lists
displays of goods in shops
calls for bids at auctions, and
calls for tenders.

19. Carlill v Carbolic Smoke Ball [1893] 1 QB 256
Distinguish offer from invitation to treat by looking at intention of offeror
Offer can be made to world at large
Unilateral contract – communication of acceptance not required
Consideration can equal detriment/effort
Text of ad:

20. Communication Offer must be communicated to offeree
‘overheard’ offer or unintended communication is not an offer
Banks v Williams (1912) 12 SR (NSW) 382

21. Offeree may be a particular person or class of persons or the whole world
“It is also said that the contract is made with all the world –that is, with everybody, and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to anyone who, before it is retracted, performs the condition, and although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement.” Bowen LJ at 268, Carlill v Carbolic Smoke Ball

22. All an offer needs is a “yes” to make a contract

23. Termination of Offers Acceptance Revocation Rejection
Condition in offer not fulfilled
Lapse of time
Death of a party

24. Revocation Must be communicated
Prior to acceptance – Byrne v Van Tienhoven (1880) 5 CPD 344
Communication can be by third party or conduct – Dickinson v Dodds (1876) 2 ChD 463
Not bound by statement to keep offer open for a specified time – Dickinson v Dodds
Unless option – Goldsborough Mort v Quinn [1910] 10 CLR 674

25. Rejection Rejection terminates an offer Counter offer is a rejection
Hyde v Wrench (1840) 49 ER 132
Response is not always counter offer/rejection
May be clarification or request for information
Stevenson Jacques & Co v McLean (1880) 5 QBD 346

26. Stevenson Jacques v McLean
“The form of the telegram is one of inquiry. It is not …[like] Hyde v Wrench…where the negotiation was at an end by the refusal of the [offeree’s] counter proposal. Here there is no counter proposal….There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer.”
Lush J at 350

27. ACCEPTANCE
A FINAL and UNQUALIFIED assent to the terms of an offer made in the manner specified or indicated by the offeror
The “yes” which ends negotiations

28. Acceptance Must respond to the offer Must be communicated
Subject to exceptions - Postal Acceptance Rule
Must not be conditional

29. Acceptance must respond to the offer
So, only those persons:
to whom the offer was made; and
who have the offer in mind at the point of “acceptance” may accept
R v Clarke (1927) 40 CLR 227

30. R v Clarke
“it is not an absolute proposition of law that one who, having the offer before him, acts as one would naturally be induced to act, is deemed to have acted on the faith of or in reliance upon that offer. It is an inference of fact and may be excluded by contrary evidence.”
Starke J at 244

31. What Can Be Accepted?
Only what was offered (without any additions, deletions or conditions)
Must end negotiations
Must be unqualified
Battle of the forms (cf counter offer)
Butler Machine Tool Co Ltd v Ex-cell-O Corp (England) Ltd [1979] 1 All ER 965

32. Acceptance must be communicated
Silence is not sufficient
Felthouse v Bindley (1862) 11 CB(NS) 869
Conduct may communicate acceptance
Brogden v Metropolitan Railways (1877) 2 App Cas 666
Empirnall Holdings v Machon Paul (1988) 14 NSWLR 523

33. Communication by conduct
“where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms.”
McHugh JA at 535 in Empirnall Holdings v Machon Paull

34. Exceptions to communication
Postal Acceptance Rule
Lord Herschell said in Henthorn v Fraser [1892] 2 Ch 27 at 33:
“Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.”
So:
Acceptance complete on posting (constructive vs actual communication)
Within the reasonable contemplation of the parties
Adams v Lindsell (1818) 1 B & Ald 681

35. Postal acceptance rule will not apply:
Contentious matters - Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93
If actual notice requested - Bressan v Squires [1974] 2 NSWLR 460

36. Wedding cake
As well, Mavis is being threatened with legal action by Chrissie Saranrap. Chrissie was married a month ago and was expecting Mavis to provide her specialty – the “nouveau doveau” - a tiered tower of cupcakes, iced in white and arranged to resemble the wings of doves – as the centrepiece cake for her wedding reception. Mavis loves doing cakes for weddings – in fact she now makes more money from doing wedding cakes than she does from her regular cooking classes.

37. Chrissie saw information about Mavis’ cake services after an article in the local paper, and called round to see Mavis, and look at the different cakes she could make. They discussed possibilities and pricing and Chrissie left with a price list. Apparently, Chrissie called and left Mavis a message on the answering machine ordering the “nouveau doveau” for her wedding, to be delivered on 2nd May at the wedding reception, for $2,000 COD. In her message, Chrissie had said: “If I don’t hear to the contrary, I’ll assume everything is OK. Call me if there is a problem – otherwise I will see you on the 2nd. Looking forward to your lovely creation.”

38. Unfortunately, because of all the work being done to the kitchen and problems with electrical work and electrical supply, Mavis had experienced a number of black outs which had interrupted her answering machine. Mavis – never received the message from Chrissie, and so of course, had not provided the cake. Chrissie is very angry and claims her wedding was ruined without the cake. She has threatened to sue Mavis.