CONTRACT LAW

Readings: Chapters 8, 9 and 10

(6th/7th Ed)

WHAT IS A CONTRACT?

Text definition:
A valid contract is an agreement made between
two or more parties (including business
organisations) that creates rights and obligations
that are enforceable by law.

Not every agreement is a contract.

Contracts can be Formal or Simple.

FORMAL CONTRACTS
Those

agreements made in writing.

Form/nature of document replaces need for
consideration. E.gs.:
of Record (Court document where
one ordered to carry out an obligation)
Contract under Seal (also known as Deed)document states its purpose, parties and
terms.
Signed and Witnessed
Signed, sealed and delivered.
Contract

SIMPLE CONTRACTS
Those

other than a formal contract

Do not be misled by the word simple.
Requires consideration
Can be created expressly (written/oral)
or implied by conduct.

ESSENTIAL ELEMENTS OF A
VALID CONTRACT
Six

essential elements:

Intention

Agreement
Consideration
Capacity
Genuine
Legality

Consent

Apparent Contract

ELEMENT 1: INTENTION TO
CREATE LEGAL RELATIONS
Parties

must intend to create legal relationsan understanding that legal action could be
taken to enforce rights.

Two

presumptions: (rebuttable)
Domestic or Social Agreements: parties do
not intend to create legal relations
Business or Commercial Agreements:
parties intend to create legal relations

DOMESTIC AND SOCIAL

AGREEMENTS
Agreements

between family members and

friends.
Assessing legality:
Friendliness of parties
Was there a commercial aspect to the
agreement?
Size/nature of consideration
Consequences if agreement is not
performed

CASE EXAMPLES
Balfour

v Balfour

Wakeling
Teen

v Ripley

Ranch v Brown

BUSINESS OR COMMERCIAL
AGREEMENTS
Note

the presumption
Some business documents may not be legally
binding e.g. MOUs, Letter of Intent, Comfort
Letters)
Case

Example:
Rose & Frank Co v Crompton Bros Ltd

ELEMENT 2: AGREEMENT
party (offeror) makes an offer to
another (offeree) and the offeree accepts
the offer.

One

Offer + Acceptance = Agreement

RULES RE OFFERS
The

Offer must be communicated.

Offers

can be made to an individual/group or

the world (see Carbolic Smokeball case)

differ from an invitation to treatinvitation to treat are invitations to make an

offer.
E.g. goods on display in shops, price catalogues,
tenders.
Offers

What about auctions?

Auctioneers asking for bids- invitation to
treat
Bidders: make offer
Contract made: when auctioneer accepts
highest bid by hitting hammer on the
rostrum.

RULES RE OFFERS CONTD

A

request for information is not an offer

(see Harvey v Facey)

An

offer differs from an option an option

is where Party A promises to sell property
to Party B if Party B pays a specific price
in an agreed period of time.

Offeree

must be aware of all terms- if not

acceptance is not binding.

RULES RE ACCEPTANCE
The

offeree must respond to and rely on a

specific offer- offer must be in their mind
at time of acceptance (see R v Clarke)

Acceptance

must be unconditional- no
counter offersCounter offer is when the offeree varies
the terms or conditions of the offer.
(see Hyde v Wrench)

RULES RE ACCEPTANCE CONTD

Acceptance

must conform to the conditions set

e.g. specified method of acceptance

Acceptance

by instantaneous communication
generally occurs when it is received (see
Entores v Miles)

Acceptance

must be communicated- silence is

not sufficient (see Felthouse v Bindley)

 Acceptance

must be communicated by the

offeree or an authorised agent

Acceptance

must occur within a specified or

reasonable time.

RULES OF OFFER AND ACCEPTANCE

BY POST
1. An offer by letter is not valid until it is
received by the offeree.
2. An offer may be accepted by letter, if parties
agree on this method.
3. Revocation of an offer by letter is not valid
until it is received by the offeree.
4. An acceptance by letter is valid from the time
it is posted (see Adams v Lindsell)

RULES ON REVOCATION OF OFFERS

An

offer may be revoked prior to acceptancerevocation must be communicated (by either

the offeror or reliable 3rd party)
(see Dickinson v Dodds)

Revocation

by post must be received before

acceptance. (see Byrne v Van Tienhoven)