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Common Issues Relating to Formation
Does a contract exist?
At what time was the contract formed?
Where was the contract formed? (although most contracts will
have a governing law clause, so applicable law of the contract is less an issue but it must have a governing law clause!)
The answers to these questions will determine whether a cause of action exists and in what jurisdiction it should be heard (e.g. Vic or NSW).
In this seminar we will focus two of these being:
Offer
Acceptance Consideration
Certainty
Intention, and
Capacity.
Refer Seminar Guide
Offer & Acceptance Analysis
Offer and acceptance analysis (your job!)has traditionally provided the framework of the determination of whether the parties have moved beyond the negotiation stage and reached a binding agreement (the meeting of the mind)(your job is to put that in writing).
The agreement is completed when the offeree provides an unqualified assent to the offeror’s clear indication to be bound on certain terms.
This analysis is derived from the classical theory of contract that presupposes the parties are free to negotiate and protect their interests.
Objective Assessment Required
Whether or not there is an agreement is a matter determined objectively by the courts. What does this mean?
The test is:
“whether it would appear to a reasonable person in the position of the
offeree that an offer was intended and that a binding agreement would be made upon acceptance.” - Carlill v Carbolic Smoke Ball Co [1893] 256 at 266.
“...whether particular conduct amounts to an offer is a question to be decided on the facts of each case” - Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424, 457. (see also Taylor v Johnson; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd)
Bi-lateral vs Unilateral Contracts
Most contracts are Bilateral. This is where an offer has been made to a specific person/s and where the obligations are executory at the time of formation.
Question: Does a contract exist when an offer is made to everyone and certain people accept by doing a specified action albeit without the knowledge of the offeror?
Case analysis - Carlill v Carbolic Smoke Ball Co (volunteer)
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
Carbolic manufactured a device called a “Carbolic Smoke Ball”
Carbolic placed an advertisement in the Pall Mall Gazette on 13 November 1891: 100 pound reward will be paid by the Carbolic Smoke Ball Company
to any person who contracts the increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 pounds is deposited with the Alliance Bank, Regent Street, shewing out sincerity in the matter.
Mrs Carlill purchased a smoke ball and used it from 20 November 1891 until 17 January 1892 when she contracted influenza.
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
Carlill v Carbolic Smoke Ball Company
Lindley LJ
The advertisement was more than a “mere puff” on the basis that 1000 pounds was deposited with the Alliance Bank. (ie “proof of sincerity in the matter”)
An offer can be made to all of the word, and can be accepted by performance of the conditions.
As a general proposition, when an offer is made it is necessary that acceptance must be notified in order to constitute a binding contract. But a person may show “by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance”
Carlill v Carbolic Smoke Ball Company
Bowen LJ
A court will look at who was intended to read the offer and what a reasonable person would understand it as saying
An offer may be made to all the word, which will “ripen into a contract with anybody who comes forward and performs the condition”
Acceptance of an offer ought to be notified to the person who makes the offer, but the person who makes the offer may dispense with the notice requirement
Carlill v Carbolic Smoke Ball Company
Key points:
The terms of an offer are determined objectively
An offer must be more than a “mere puff”
An offer can be made to all the world
An offeror can prescribe the mode of acceptance however “if notice of acceptance is required, the person who makes the
offer gets the notice of acceptance contemporaneously with his notice of performance of the condition”
Carlill is an example of a unilateral contract i.e. one where there is one offeror but many unspecified offerees and one where “the consideration on the part of the offeree is completely executed by the doing of the very thing which constitutes the offer” (Australian Woollen Mills pty Ltd v Commonwealth (1954)
Carlill v Carbolic Smoke Ball Company
Key points:
Accordingly in Carlill v Carbolic Smoke Ball Co the plaintiff accepted the company’s offer to pay the reward by using the smoke ball in accordance with the instructions and then contracting influenza.
Invitations to treat
Another important point is to determine at what point a contract exists when someone offers something for sale e.g. goods in a supermarket or at an auction
Case analysis - Pharmaceutical Society of Great Britain v Boots
Cash Chemists Ltd [1953] 1 QB 401 (volunteer)
Invitations to treat – an invitation for others to make offers or enter negotiations is not in itself an offer waiting for acceptance.
Tenders and auctions are invitations to treat
Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401
Boots operated a self service shop in one part of which certain drugs were displayed.
When a customer chose goods, he or she put them in a wire basket and took them to an attendant at the cash register at one of the shop’s exists.
Whenever a customer took drugs to the cash register the pharmacist supervised that part of the transaction.
Question: when did the contract arise: at the cash register or when the customer put them into the basket.
Pharmaceutical Society of Great Britain v Boots Cash Chemists
Somervell LJ:
In the case of an ordinary shop, it is intended that customers should go and choose what they want, and the contract is not completed until after the customer indicates the goods that he or she needs and the shopkeeper accepts that offer.
Pharmaceutical Society of GB v Boots
Key Points:
An invitation to treat is not an offer
An offer is often distinguished from an invitation to treat, which is an invitation to others to make offers or enter into negotiations.
What always follows an invitation to treat?
Question: It would have been an absurd outcome if the court had held that a purchaser was committed to the sale once the item was placed in their basket.
Invitations to treat– examples
A wine merchant’s circulation of a price list has been regarded as an invitation to treat on the basis that, if it was not on offer, the merchant might find himself obliged to supply unlimited quantities of wine at the listed price.
Newsagent
Bookshop
An indication by the owner of property that he or she might be interested in selling at a certain price.
Any others?
Tenders A call for tenders is often seen as an invitation to treat.
Each party who submits a tender is usually considered to be making an offer.
What about where a seller indicates that they will accept the highest tender?
Where a seller states that they will accept the highest tender the court will see the invitation to submit tenders as an offer capable of acceptance by the party who submits the highest tender: Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1 AC 207 - in this case the seller promised to accept the highest bid for the purchase of shares and the court construed that promise as an offer.
Requests for information
A distinction is made between an offer and a request for information.
In order to determine whether there is a contract or an exchange of information you will need to examine the documents and conduct of the parties.
For an example of a situation which amounts to a mere exchange of information see B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147. Note that the use of the word ‘offer’ is not conclusive in determining the status of the statement.
Also watch out for….
In addition to invitations to treat offers should be differentiated from:
Puffery - Carlill v Carbolic Smoke Ball Co.
A supply of information – Stevenson Jacques and Co v McLean. Examples?
A counter offer - Butler Machine Tool Co Ltd v Ex-Cell-o Corp
Puffery
Is a statement made in an offer to be considered as a term of the contract when the offer is accepted?
Why aren’t advertisers sued when their products don’t do everything they say they will?
Puffery refers to promotional statements and claims that express subjective rather than objective views, which no “reasonable person" would take literally.
Question: why wasn’t the promise to pay a 100 pounds considered to be puffery in Carlill?
Supply of Information
A supply of information is not an offer.
Examples?
Websites
Brochures
Advertisements
What is missing from these that makes them insufficient to be considered an offer?
Termination of an offer
Termination of an offer
Exercise– complete the following table in groups
How may an offer be terminated?
Action by whom?Offeror Offeree
Counter offer
Withdrawn/revoked
Lapse
Failure of condition
Death
1 Counter-offer
If an offer is accepted with some modifications then this is a counter-offer and a contract does not exist until the original offeror accepts the modified terms.
For example, I offer you a ton of top soil for $350 to be picked up at my yard and you reply that you agree to the price but want delivery at your home.
This is not a contract because you have introduced a new element.
A counter-offer is seen as a rejection of the original offer.
How would you classify a counter offer?
2 Withdrawn/revoked
General rule – an offer may be revoked at any time before it is accepted provided the withdrawal is brought to the attention of the offeree.
So a promise to hold an offer open for a specified period is not binding unless the offeree has given consideration for that promise.
Does that surprise you?
Question: what happens if the revocation in not communicated directly?
Case analysis - Dickinson v Dodds (1876) 2 Ch D 463
Dickinson v Dodds (1876) 2 Ch D 463
On Wednesday 10 June 1874 Mr Dodds offered to sell some houses to Mr Dickinson for £800. The offer was in writing.
The offer was stated to be open until 9am on Friday 12 June.
On Thursday afternoon, another man called Mr Berry told Mr Dickinson that the houses had already been sold to someone called Mr Allan (who was the second defendant).
Mr Dickinson found Mr Dodds at 7am on Friday morning (he was sitting in a railway carriage) and said he wanted to proceed with the purchase
Mr Dodds said it was too late.
Mr Dickinson sued for breach of contract.
Dickinson v Dodds (1876) 2 Ch D 463
Judgment
James LJ held that Mr Berry had conveyed notice of the withdrawal of the offer. After referring to the document of the 10th of June, 1874 he said the following:
“The document, though beginning, "I hereby agree to sell”, was nothing but an offer, and was only intended to be an offer, for the Plaintiff himself tells us that he required time to consider whether he would enter into an agreement or not. Unless both parties had then agreed there was no concluded agreement then made…
……..Of course it may well be that the one man is bound in some way or other
to let the other man know that his mind with regard to the offer has been changed; but in this case, beyond all question, the Plaintiff knew that Doddswas no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, "I withdraw the offer.”
Dickinson v Dodds
Key Points:
The basis of acceptance is that there must be a meeting of the minds between offeror and offeree
An offer can be withdrawn at any time before acceptance but the withdrawal must be communicated to the offeree
Communication of the withdrawal can be made by any reliable third party
Termination of an Offer (cont)
In Dickinson v Dodds the offeror promised to leave the offer open for a certain period of time and then withdrew the offer.
Are there any circumstances when a promise to leave an offer open for a specific period of time will be enforceable?
Case analysis - Goldsbrough Mort and Co Ltd v Quinn (1910) 10 CLR
674 (volunteer)
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674
John Thomas Quinn agreed to give Goldsbrough the option to buy 2590 acres of land.
To exercise the option Goldsborough had to accept the offer within 1 week.
Goldsborough paid Quinn 5 shillings as consideration for this option.
Quinn subsequently revoked the offer before the week had expired (he realised the land was worth more)
G accepted the offer within the week (but after the “revocation”).
Griffiths CJ:
An offer may be withdrawn at any time before acceptance (DvD).
In this case, it was not a mere promise, but a contract for valuable consideration (an ancillary contract). Therefore Goldsbrough was bound in contract to keep the offer open.
Isaacs J
Unsupported by valuable consideration, the “offer” was a mere promise and could be withdrawn.
The consideration ensured the continuance of the offer, by “creating a relation in which the law forbids the offeror retracting it”
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674
Goldsbrough Mort v Quinn
Key Points:
An offer can be withdrawn at any time before acceptance
However, where there is consideration for an offer, it cannot be withdrawn.
This is more properly analysed as a separate (ancilliary) contract called an option to purchase.
2b Withdrawal of an offer to the whole world…
We have seen that an offer can be withdrawn and will no longer be valid as long as the revocation is communicated to the offeree.
Question: What happens in a situation where the offer has been made to the whole world (as per the Carlillcase) and/or the action required for acceptance has been commenced?
Case analysis - Mobil Oil Australia Ltd v Wellcome International
(1998) 81 FCR 475 (volunteer)
Mobil Oil Australia v Wellcome International (1998) 81 FCR 475
Mobil operated a franchise scheme known as the Circle of Excellence
The GM for Retail Marketing told franchisees that Mobil wanted to implement a scheme whereby a franchisee who:
achieved a score of 90% or better would receive a free year
Achieved a score of 90%+ in each of the 6 years following 1991, would be granted a 9 year renewal for free
A videotape of this address was sent to all franchisees, and also communicated in brochures
Several franchisees commenced to improve their services on the basis of this information.
In 1994, Mobil announced that it would not grant renewals free of charge
Lockhart, Lindgren and Tamberlin JJ
If there was an offer, could it be revoked?
Traditionally understood that an offeror is not at liberty to revoke the offer once the offeree embarks upon the act of acceptance
This approach was questioned – concluded that there is no universal proposition that an offeror is not at liberty to revoke the offer once the offeree embarks upon the act of acceptance
In this case the Franchisees who started to improve their businesses benefited in other ways they had also signed franchise agreements that didn’t include the provision of additional free years.
Unless there had been an ancilliary agreement that the offer would not be withdrawn then Mobil was within its rights to do so.
The withdrawal had to be communicated appropriately (which it was).
In some cases the offeror may be estopped from withdrawing the offer!
Mobil Oil Australia v Wellcome International (1998) 81 FCR 475
Mobil Oil Australia v Wellcome International
Key points:
In unilateral contracts it is commonly understood that offer cannot be revoked once acceptance has commenced, but this is not a universal rule and depends on the facts .
A revocation has to be communicated to all the potential offerees.
3 Lapse
An offer open for a certain period of time will lapse at the end of that period.
If the duration of the offer is not made clear then it will lapse after a reasonable period of time: Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR 241.
When do you think the following offers will lapse:
Offer to buy a used car from a dealer?
Offer to buy a house?
4 Failure of condition
And offer may be made subject to an express or implied condition that must be fulfilled before the offer can be accepted.
Alternatively, it may be made subject and express implied condition that should lapse upon the happening of certain events.
Subject to finance
Subject to pest report
Subject to government approval
Subject to criminal check
5 Death
If the offeror dies then the offer may still be accepted if the offeree accepts before they receive notice of the death.
Generally an offer is not capable of acceptance where the offeree dies.
However, the personal representatives of a deceased offeree may accept an offer addressed to the offeree, if the offer is drafted in terms which allow it to be accepted by the personal representatives.
PART 2 - ACCEPTANCE
ACCEPTANCE
An offer only becomes a contract when accepted unconditionally.
Subject to terms of the offer, acceptance can be in writing, oral or implied from the offeree's conduct.
Whether or not an offer has been accepted is decided objectively. Was there an apparent intention to contract, to be legally bound? How would a reasonable person understand the words and actions of the offeree?
Do we think a parties subjective intentions are relevant to determine intentions?
ACCEPTANCE vs Counter-Offer
A valid acceptance must be unconditional and correspond to the offer i.e. no deletions, additions or qualifications.
There is often negotiation between the parties – be careful to work out who has made the final offer to see whose terms were accepted.
This will affect when the contract was made and on what terms.
Case Analysis - Butler Machine Tool Co Ltd v Ex-Cell-O Corp
(Volunteer)
Butler Machine Tool Co v Ex-Cell-O Corp [1979] 1 WLR 401
Butler issued a quotation for the supply of a machine at around $75,000, "subject to the terms and conditions on the reverse of the quotation". These included a price variation clause and a further clause that "these terms and conditions shall prevail over any terms and conditions in the Buyers order".
Buyers placed an order, "on terms and conditions as below and overleaf". At the bottom of the order was a tear off slip to be returned to the Buyer, saying that the purchase order was accepted on the Buyer's terms and conditions.
Butler Machine Tool Co v Ex-Cell-O Corp [1979] 1 WLR 401
This slip was returned with a letter acknowledging receipt of the order.
There were a number of differences as to subject matter, terms of delivery etc. The sellers sought to charge an increase in price of some $2,890 between the date of the order, and the date when the machine should have been delivered, relying on the terms of their quotation. The buyers disputed this relying on the terms of their purchase order.
Butler Machine Tool Co v Ex-Cell-O Corp
At first instance:
The trial judge did not take the traditional view of contract analysis and held that the initial emphatic statement of terms prevailed throughout.
Butler won
Ex-Cell-O Corp appealed
Butler Machine Tool Co v Ex-Cell-O Corp
On appeal:
Lord Denning MR
According to the traditional analysis: the quotation was an offer; the order, although purporting to be an acceptance, was a rejection of the offer, substituting for it a counter-offer - "the counter offer kills the original offer"; the sellers then accepted the counter offer.
Ex-Cell-O Corp won
Butler Machine Tool Co Ltd v Ex-Cell-O Corp
Key Points:
In most cases, there is a contract as soon as the last of the forms is sent and received without objection being taken to it
If the difference in terms is so material, the buyer ought not to be able to take advantage of the difference unless he draws it to the attention of the seller
Knowledge and compliance
Generally an offer can only be accepted by those persons to whom it is made.
An offeree must be aware of the existence and the terms of the offer when acceptance occurs, otherwise there is no acceptance.
Conduct will not amount to acceptance if it was not carried out in response to an offer. Put another way, a unilateral contract will only arise if the offeree performs the requested acts in reliance on the offer.
Case analysis - R v Clarke (1927) 40 CLR 227 (volunteer)
R v Clarke (1927) 40 CLR 227
The Govt of WA offered a reward of £1000 for information leading to the conviction of the murderers of 2 policemen and suggested that a pardon might be available to any accomplice not being a person to have actually committed the murder.
Clarke and Treffenne were arrested in connection with one of the killings.
Clarke made a statement and gave evidence, after which T and one other were convicted for that murder.
Nobody was charged with the other murder.
Clarke later claimed the reward.
Admitted at trial that Clarke was only motivated by clearing his name. Clarke also admitted that he did not act in reliance on the offer (discuss subjective page 80)
Isaacs ACJ
The person accepting must “act on the offer”.
As Clarke did not act “on the faith of, in reliance upon” the offer there was no acceptance
Starke J When giving the information, Clarke did not act "in reliance upon
the offer or with the intention of entering into any contract". While the convictions would not have come about without his evidence, and so the Crown obtained what it wanted, Clarke gave the information solely to clear himself.
[Note: There is a good discussion in case about the objective approach to contract formation generally]
R v Clarke (1927) 40 CLR 227
R v Clarke
Key Points:
Acceptance must be on the faith of / in reliance upon the offer
Therefore the offeree must be aware of the offer when it is accepted
Mode of acceptance General proposition is that acceptance must be communicated to
the offeror.
Rule means that contract is formed when the acceptance is received by the offeror.
The method of communication may also be a matter for the parties and the offeror may prescribe a particular mode of acceptance -Manchester Diocesan Council for Education v Commercial and General Investments Ltd [1970] 1 WLR 241
Question: firstly, can silence constitute acceptance?
Case analysis - Felthouse v Bindley (1862) 142 ER 1037 (Volunteer)
Felthouse v Brindley (1862) 11 CB (NS) 869
Paul the uncle and John the nephew were negotiating about the sale of a horse.
Following a misunderstanding about the price of the horse, the uncle wrote to the nephew saying, "if I hear no more about him, I consider the horse mine at £30-15."
The nephew did not reply but told the auctioneer that the horse had been sold. However, the auctioneer then went ahead and sold the horse by mistake.
The uncle then sued the auctioneer in conversion - an action in which P claims that D had improperly dealt with his property.
Felthouse v Brindley
Willes J
Uncle had no right to impose upon his nephew the sale of the horse unless the nephew had communicated the acceptance.
Although the nephew intended the uncle to have the horse, he had done nothing to communicate this intention to the uncle, or to bind himself. Therefore there was no contract to pass the property in the horse to the uncle.
Felthouse v Bindley
Key Points:
Mere silence is not sufficient to accept an offer
Methods of acceptance (cont)
Although the offeror cannot prescribe silence as a method of acceptance, the offeror can impliedly waive the right to have acceptance communicated, such as in a unilateral contract - Carlill v Carbolic Smoke Ball Co
The law requires some objective manifestation of acceptance and it may be appropriate to infer acceptance in some circumstances .
For instance, silence of an offeree in conjunction with other circumstances, may indicate acceptance of an offer.
Case Analysis - Empirnall Holdings v Machon Paull (1988) 14
NSWLR 523.
Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523
EH, a property developer retained architects MP to do work in connection with property development.
They were asked if they would undertake work as a project manager.
After they agreed to do so, further work was done, and they requested a progress payment, and the signing of a contract.
They were told that Eric "does not sign contracts".
After further work was done, and progress payments made EH went into administration.
The question arose as to whether there was a contract.
Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523
MP demanded payment and the administrator claimed there was no contract.
Court of first instance found a contract existed and administrator appealed.
Legal issues:
Acceptance of offer
Silence as response to offer
Acceptance inferred by conduct
Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523
Appeal dismissed. HELD McHugh J
Silence is usually insufficient to create any contract - the objective theory requires some external manifestation of consent.
Convenience requires communication, and silence is usually seen as rejection.
But the offeror can be bound if communication is dispensed with.
Where an offeree, with a reasonable opportunity to reject the offer of goods or services, takes the benefit of them under circumstances which indicate they were to be paid for, the tribunal of fact may hold that the offer was accepted according to its terms.
Acceptance by benefit
In Empirnall Holdings v Machon Paul Partners(1988), the court objectively inferred acceptance when
the offeree took advantage of the benefits of a contract.
Acceptance must be communicated to the offeror except where the reasonable bystander can infer from the conduct of the offeree that they do in fact have knowledge of the terms and conditions of the contract and have continued to take the benefits of the offer under those terms and conditions.
Postal Acceptance Rule
The postal acceptance rule is an exception to the rule that acceptance must be communicated to the offeror to be effective.
Where the parties contemplate acceptance by post, the acceptance will be complete as soon as the letter is properly posted.
Deemed acceptance although offeror may not receive notification
Can you see any problem with this?
Postal Acceptance Rule
This is so even if the letter is not delivered.
“deemed” receipt of acceptance.
“Received” when posted.
Offeree only needs to prove that the document purporting to accept the offer was, in fact, posted.
But what about instantaneous modes of communication such as telex?
Case analysis - Brinkibon Ltd v Stahag Stahl (Volunteer) –which
was really a case about how should communications by telex to categorised?
Brinkibon Ltd v Stahag Stahl
The case involved a contract for the sale of steel bars between an English Co, the buyer, and an Austrian Co, the seller.
After long negotiations the buyer indicated that it wished to proceed with the sale by sending a Telex to the seller in Vienna.
The contract was not performed and the buyer wanted to sue the seller in the English courts.
At issue was whether England was the correct jurisdiction.(Note: under the rules of the Supreme Court a party was able to serve a writ on someone outside the jurisdiction “if the contract was made within jurisdiction”; where was the contract made?)
Brinkibon Ltd v Stahag Stahl English company was successful at first instance.
The Austrian Co appealed to Court of Appeal, which was allowed.
The English Co then appealed to the House of Lords.Appeal dismissed. Held: contract made in Austria.
Legal issue:1. Does the “postal rule” apply to Telex messages or should the
“telephone” rule apply?(“telephone” rule means contract complete when acceptance heard by offeror i.e. in Vienna)
Two grounds were stated: 1. The contract was made in England: The buyer in London accepted a
counter-offer by telex issued from England - or the counter offer was accepted by the conduct of the buyer in England.
2. The breach of contract was committed in England
Brinkibon Ltd v Stahag Stahl
Key Points: General rule is that a contract is formed at the time and place that
acceptance of an offer is communicated by the offeree to the offeror i.e. where oral, there is no difficulty, assuming same place same time
Where communication is at a distance, acceptance of an offer occurs at the time and place where the acceptance of the offer is put in charge of the post office (i.e. “postal rule”)
Where communication is instantaneous, a contract is formed when acceptance is communicated to the offeree (i.e. should be no different to the general rule)
Telex was determined to be an instantaneous communication (principle has since been applied to fax & email messages)
Facsimile
Telex, telegram?
What about facsimile?
In relation to telex and facsimile transmissions which are near-instantaneous methods of communication, the contract is made where the acceptance is received: Reese
Bros Plastics Limited v Hamon-Sobelco Australia Pty Limited (1988) 5 BPR 11,106
Electronic Communications
As we’ve just seen, for near instantaneous communications such as telex and fax the general rule is that acceptance is not complete until it is received -Brinkibon Ltd v Stahag Stahl
What is the situation with emails and acceptances posted on Internet sites?
The Electronic Transactions Act 2000 (NSW) applies to email communications generally and has an impact upon issues concerning writing, signature and time and place of and dispatch and receipt of the email.
Do I have a volunteer who can explain the ETA and its effect on email and internet acceptances? (109)
Ticketing Cases
Question:
At what point is the contract formed when you buy a plane ticket?
Case analysis - MacRobertson Miller Airline Services v
Commissioner of State Taxation (WA) (1975) 133 CLR 125
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125
WA tax dept claimed that MMA airlines should pay stamp duty on tickets issued by the airline on the basis that they were contracts or memorandum of contracts. The Airline had the following procedure:
the passenger made their requirements known
a ticket was tendered in return for the fare
in due course the passenger tendered the ticket to secure transport
a condition printed on the ticket provided that the airline reserved the right to abandon the flight at any stage and that the airline was under no liability other than providing a refund
MMA v Commissioner of State Taxation (WA)
Barwick CJ
Where a ticket does not contain a promise to carry a passenger on a specified flight, there is no contract until the airline has provided the passenger with a seat on the plane.
Stephen J
The ticket is an offer, the contract being made upon acceptance of that offer by the passenger, usually by conduct.
Acceptance may be:
an overt act consistent only with acceptance (eg. boarding the plane); or
the passenger’s failure to reject the offer after he has had an opportunity of learning the conditions upon which carriage is offered (but see Felthouse v Brindley)
What will be a reasonable time within which to reject proffered terms will be a question of fact in every case
MMA v Commissioner of State Taxation (WA)
Key points:
Where there is no promise contained on the ticket, the ticket for carriage is an offer
Acceptance does not occur when ticket is purchased, but at some time afterwards (depends on the facts of the case)
Gibson v Manchester City Council [1979] 1 WLR 294
In 1970, Manchester City Council adopted a scheme that allowed tenants to purchase their homes
MCC circulated a brochure to tenants
On 28 November 1970, Mr Gibson filled in an application attached to the brochure
On 10 February 1871, Council wrote to Mr Gibson stating the purchase price of the house.
Gibson completed an application form (leaving the purchase price blank) and returned it to the council.
Before formal contracts were prepared, Council resolved to abandon the scheme and would complete only sales for which binding contracts had been completed.
Gibson v Manchester City Council
Lord Diplock
There may be exceptional circumstances that do not fit into the normal analysis of a contract being constituted by offer and acceptance
Saw no reason in this case to depart from the conventional approach of offer and acceptance
Found that there was no firm offer
There can be no acceptance without an offer
Gibson v Manchester City Council
Key points:
Use the classical analysis of offer/acceptance except in exceptional circumstances
A contract cannot be formed unless there is a firm offer
Acceptance must be in response to an offer
Brinkibon v Stahag Stahl Und Stahlwarenhandelsgesellschaft
Lord Wilberforce
General rule is that a contract is formed at the time that acceptance is communicated to the offeror, at the place where acceptance is communicated to the offeror
Where communication is at a distance, acceptance occurs when the acceptance is put in charge of the post office
Where communication is instantaneous, a contract is formed when acceptance is communicated to the offeree
Telex was determined to be an instantaneous communication (principle also applied to fax messages in Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106)
What is the importance of the Electronic Transactions Act 2000?
Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Council purchased electricity in bulk and on-sold it to C
The agreement provided for automatic changes in rates according to changes in the basic wage and cost of coal.
The agreement contained a further clause that permitted the council to vary the amount it charged if the council’s costs varied in any other way.
It also contained an arbitration clause.
Reasoning “What were Council’s costs?”
Uncertainty only arises where the language is so obscure it is not capable of any definite or precise meaning.
A clause does not have to be capable of only one meaning.
Here the arbitration clause provided sufficient certainty in relation to the variation of the council’s costs to which a precise and definite meaning could be prescribed.
Whitlock v Brew (1968) 118 CLR 445)Facts
W agreed to sell land to B for a specified price.
The land was sold on the condition that B would grant a lease of part of the land to a third party (Shell) “on such reasonable terms as commonly governed such a lease”.
B declined to complete the purchase.
W terminated the contract and kept B’s deposit.
Whitlock v Brew (1968) 118 CLR 445)Decision
Contract void for uncertainty.
No evidence for what was standard and reasonable for such a lease.
Arbitration Clause not sufficient to save the agreement.
Special condition 5 was foundational and not be able to be severed.
B’s deposit was refunded.
Mason J in Meehan v Jones (1982) 149 CLR 571Facts J agreed to sell land to M. Contract was executed subject to the following conditions:
M entering into a satisfactory agreement with Ampol for the supply of a satisfactory quantity of oil.
M receiving approval for finance on satisfactory terms and conditions.
If these conditions were not satisfied by 31 July 1979 then the agreement was null and void.
J claimed the contract was void and on 23 July 1979 sold the property to another person.
Before 31 July 1979, M gave notice that it had made satisfactory arrangements with Ampol and obtained finance – sought specific perforamance of the contract.
Reasoning Per Mason J – the implied obligation of honesty means there is
sufficient certainty as it removes the purchaser’s discretion as to whether finance is actually sought.
The discretion is not unfettered because the Court is capable of determining whether acts of the purchaser are honest.
Promise not illusory – contract of sale is enforceable. How to reconcile Placer Developments?
The promise is not unbounded – objective criterion of honesty.
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130Facts
P entered into a contract with the following term:
“I confirm a salary package of $36,000 per annum, fully maintained company car and the option to participate in the company’s senior staff equity sharing scheme.”
At the time of the offer, no such scheme existed.
No such scheme was subsequently brought into effect.
When his contract of employment was terminated P claimed damages for failure to provide him with the option to participate in the nonexistent company senior staff equity sharing scheme.
Issues Two types of uncertainty
Vague uncertain and ambiguous clause – can’t be determined what the words in the contract meant
Illusory promise – retains a discretion as to whether to implement the scheme.
The court will endeavour to uphold the validity of the agreement, but will not do so where the court is asked to spell out to an unacceptable extent terms on which the parties have failed to agree
Per Kirby P in Biotechnology Australia Pty Ltd v Pace(1988) 15 NSWLR 130
Biotechnology Australia Pty Ltd v PaceMethodology Where possible uphold contracts (Upper Hunter Council) However, Courts will not spell out matters the parties have
themselves to agree Leaving a term to be settled by an identified third party
(arbitrator) is likely to be sufficiently certain. Where there is a readily ascertainable external standard the
Court will have regard to it in order to flesh out the allegedly uncertain provision (Meehan v Jones)
Where the term specifies a range of possibilities, the party making the promise will be held to at least the minimum provision in that range.
Basically, should the judges attempt to find the contract, or not.
Masters v Cameron (1954) 91 CLR 353 Both parties signed a written Memorandum whereby C
agreed to sell and M agreed to buy a property. The document contained the following statement:
“This agreement is made subject to a formal Contract of Sale which shall be acceptable to my Solicitors on the above terms and conditions”
Both parties behaved as though the transaction was proceeding but no further documentation was signed.
When M ran into financial difficulties he refused to complete the transaction.
Masters v Cameron (1954) 91 CLR 353Reasoning Default interpretation of a ‘subject to contract’ is that there
is no intention to be legally bound. Negotiating parties reserve rights to withdraw, might be
more than two parties, complex negotiations of large contracts etc.
Distinction between conditions to relating to formation and conditions relating to performance: A contract may not be formed until a formal document
is drawn up and signed; or The obligations in an agreement may not be performed
until some condition is met. Note however that interpretation is a question of fact.
