Professional Documents
Culture Documents
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Week 2 AGREEMENT
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Four Elements
Agreement
Consideration
Intention to create Legal Relations
Certainty
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Nature of Agreement
The formation of a contract requires a ‘consensus ad idem’, i.e. a meeting of the minds
regarding the subject matter involved
Agreement is based on a voluntary assumption of rights and obligations (classical
contract theory)
In determining whether an agreement has been reached, courts use an objective test,
based on the reasonable person’s assessment of the facts. Secret mental reservations
are ignored (Carlill v Carbolic Smokeball / Taylor v Johnson)
Traditional doctrine of agreement based on OFFER by one party and its correspondent
ACCEPTANCE by another (offer + acceptance = agreement)
(can also be demonstrated without offer & acceptance)
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Offer
Identifying an offer ‘in the wild”
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Nature of Offer
An offer is the indication by one In deciding whether an offer has been made,
person (offeror) to another courts employ an objective test (Carlill v
(offeree) of his or her willingness Carbolic Smoke Ball)
to enter into a contract with that Offeror’s intention is irrelevant
person on certain terms Intention ascertained from point of view of
Although an offer cannot in itself reasonable person in offeree’s position (Toll v
Alphapharm)
give rise to contract, it creates in
Offer may be made to an individual, group or
the offeree a power subsequently world at large
to create a contract by accepting Offer provides all the information required so
the offer (unless the offer has that the terms can be identified when the offer
been withdrawn or terminated) is accepted.
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I refer to your request for details of the cost of buying your council house. The corporation may be prepared to
sell the house to you at the purchase price of £2,725 less 20 per cent = £2,180 (freehold) …
Maximum mortgage the corporation may grant: £2,177 repayable over 20 years.
Annual fire insurance premium: £2.45 Monthly repayment charge, calculated by: (i) flat rate repayment method £19.02
If you wish to pay off some of the purchase price at the start and therefore require a mortgage for less than the
amount quoted above, the monthly instalment will change; in these circumstances, I will supply new figures on
request. The above repayment figures apply so long as the interest rate charged on home loans is 8.5 per cent. The
interest rate will be subject to variation by the corporation after giving not less than three months’ written
notice, and if it changes, there will be an adjustment to the monthly instalment payable. This letter should not be
regarded as firm offer of a mortgage.
If you would like to make formal application to buy your council house, please complete the enclosed application
form and return it to me as soon as possible .
Yours faithfully,
(Sgd)
H R PAGE
CITY TREASURER …
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Conclusions
Held: The words “may be prepared to sell” and “if you would like to make a
formal application to buy...” in MCC’s letter make it impossible to construe
this letter as a contractual offer. The letter and application form simply set
out the financial terms on which MCC may be prepared to consider a sale
and purchase in due course. Accordingly, there is no contract.
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• Puff: Puff consists of all those statements which are made to induce contracts but are so
clearly far-fetched or exaggerated that no reasonable person would believe them to be
binding statements of fact on which they should rely. Although puff may induce a
contract, it is not binding on the party making them and does not give the other party
any grounds on which to seek a remedy. Mitchell v Valherie (2005) 93 SASR 76
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• Displays of goods in Shops: the display of goods in a shop window with a price ticket attached was merely an
invitation to treat and not an offer for sale the acceptance of which constituted a contract. Fisher v Bell [1961] 1 QB
394
• Auctions: an auctioneer’s call for bids is only an invitation to treat. When the buyer makes a bid, it is an offer to buy at
that price. It is then up to the auctioneer to either accept or reject the bid on behalf of the principal. British Car
Auctions v Wright [1972] 1 WLR 1519 In auctions ”without reserve”, general rule applies (AGC (Advances) Ltd v
McWhirter (1977) 1 BPR 9454), but failure to sell to highest bidder may be breach of collateral contract (Ulbrick v
Laidlaw [1924] VLR 247)
• Tenders: an announcement calling for tenders is not usually regarded as an offer; it is normally an invitation to treat.
The offer comes from those submitting tenders and each such tender constitutes a separate offer to deal on its own
terms. Spencer v Harding (1870) LR 5 CP 561 If it has conditions attached to it a tender can be an ofer : Harvela
Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1 AC 207
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The leading cases
Learning what an offer is by exploring what it is not….
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The advertisement
Issues
1 Was there an indication by one person to another of his or her
willingness to enter into a contract with that person on certain terms
without further negotiation?
2 Was this an “offer” to contract or merely an “advertisement” or “mere
puff ”?
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• The advertisement was clearly an offer to all • The advertisement was not an offer. The words
the public (the world at large) do not express a promise. No promise was
intended.
• As soon as Mrs Carlill did what the • The advertisement was a mere “puff” or boast
advertisement directed, she had a contract with and not meant to be legally binding.
Carbolic (i.e., she “accepted” the offer). • Mrs Carlill did not communicate her
acceptance of the offer.
• When she fell ill with the flu she was entitled to • No consideration moved from Mrs Carlill in
claim the £100 pursuant to the contract. exchange for Carbolic’s promise to pay £100.
• The advertisement is too vague (uncertain) (no
time limit for contracting the flu and being able to
claim the £100).
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Judgment
Held:
• You can make an offer to the entire world which “ripens” into a contract when
someone comes forward and performs the condition=unilateral offer
• Acceptance of a unilateral offer occurs by performing the condition
• Notification of acceptance can occur at the same time as performance
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Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1 QB 401
Facts:
Boots operated a self-service store. One section displayed goods which could be
bought without the supervision of a pharmacist. Another section was under the control
of a pharmacist as required by the relevant legislation – the Pharmacy and Poisons Act
1933 (UK) which made it unlawful for a person to sell certain drugs unless the “sale is
effected by or under the supervision of a registered pharmacist”.
The pharmacist stood at the exit to the store (to “supervise the purchases”).
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Issues
• Has Boots breached the law?
• Was the display of goods an offer?
– when a customer picked up the drugs to which the legislation
applied, and put them in a basket (self-service in other
words) had he/she purchased the drugs? (contract
concluded?)
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PSB argued that the drugs had been Boots argued that the legislation had not been
purchased/contract made, when customer put drugs contravened because only when a customer took
into basket = and as this was not supervised by a drugs to the cash register, was an offer made = here
registered pharmacist = therefore the legislation had the pharmacist supervised that part of the transaction
been contravened. and was authorized to prevent a customer from
purchasing drugs if he/she saw fit.
The sale was in other words “effected by or under the
supervision of a registered pharmacist” as the
legislation required.
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Judgment
• Held: The display of the goods was only an invitation to treat.
Customers ‘offered to buy’ when they took goods to the counter
and at that point Boots decided whether to accept their offers or
not. That part of each transaction formed the culmination of the
sale and it was supervised by a pharmacist.
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Termination of Offer
• Lapse of time: An offer expressed to be open to acceptance for a particular period will lapse at the end of that period
Dickenson v Dodds. If no period is specified, the offer will lapse after a “reasonable period” Ramsgate Hotel Co Ltd v
Montefiore; Ballas v Theophilos (No 2). What is a “reasonable” period of time will depend on the circumstances of
the offer. Normally the death of offeree or offeror causes the offer to lapse: Fong v Cili and Bradbury v Morgan
• Failure of condition: if a condition is not satisfied, the offer is incapable of acceptance and is terminated.
• Rejection: rejection terminates an offer: Tinn v Hoffman & Co (1873) 29 LT 271. An offer that is terminated on
rejection cannot be revived.
• Counter-offer: Where a person purports to accept an offer, but introduces new terms not in the original offer, no
contract is made. The offeree, in effect, refuses the offer and makes a counter-offer. A counter-offer is a rejection of
the original offer ( Hyde v Wrench (1840) 3 Beav 334) and creates a new offer on materially different terms.
• Revocation of offer: Offer can be revoked any time before acceptance. Revocation effective only when actually
communicated to offeree: Byrne & Co v Leon Van Tienhoven & Co (1880) LR 5 CPD 344. Communication of
revocation may be made by reliable third party: Dickinson v Dodds (1876) LR 2 Ch D 463. Promise to hold offer open
for certain time is only binding if consideration is given (option): Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR
674
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Goldsbrough Mort & Co v Quinn (1910) 10 CLR 674
• Facts: Quinn granted the company an option that an offer to sell his land would be
open for 1 week in consideration for 5 shillings received from Goldsbrough. Before
the week had expired and before the offer had been accepted, Quinn told the
company that he was withdrawing the offer. The company then wrote to Quinn
within the week, accepting the offer. The company sued for specific performance.
• Issue: was the offer revoked?
• Held: Agreeing to hold the offer open for 1 week for 5 shillings was an option and
binding on Quinn, because of the consideration paid for the promise. This prevented
revocation of the offer within the week. There was valid acceptance of the offer, so
there was a contract.
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Problems with unilateral contracts
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Acceptance
Recognising Acceptance in the wild…
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What is Acceptance?
• An acceptance is an unqualified assent to the terms of an offer that is still open
• In bilateral contracts, acceptance is the making of a promise to the offeror
• In unilateral contracts, it is by performing the acts specified in the offer
• Acceptance is determined under the objective approach: Taylor v Johnson (1983) 151
CLR 422
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Held: principle from Felthouse accepted: an offeror cannot set up a contract by stipulating
silence as a mode of acceptance, However, silence may indicate acceptance in some
circumstances. Apply “objective test” to determine whether there was assent to the
offer- view of “reasonable bystander”
EH did more than remain silent- it had taken the benefit of MP’s work – knowing terms
of MP’s offer. This constituted acceptance of MP’s offer. MP gave EH a reasonable
chance to reject the offer. Acceptance is a question of fact. “objective bystander” would
conclude EH had accepted the offer.
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– Lord Wilberforce- general rule is that a contract is formed when acceptance is communicated to offeror…therefore “appears
logical” that a contract should also be formed where acceptance is communicated to offeror
– But… “no universal rule can cover all such cases…must be resolved by reference to intentions of the parties, by sound business
practice …”
– However, if message sent or received through a third party, out of office hours or not intended to be read immediately,
general rule may not apply
• Faxes: Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11
– a fax which is sent through telephone lines from one machine to another, should be treated as a form of instantaneous
communication- i.e. governed by the general rule that an acceptance is effective only when & where received by the offeror
• Emails: Lo v Russell (No 2) [2017] VSCA 14
– Now clear in Victoria that email should be treated like other forms of instantaneous communication- that acceptance
is effective only when received. See also in Olivaylle Pty Ltd v Flottweg AG (No 4) (2009) 255 ALR 632. See
Electronic Transactions Act 2000 (Vic) ss 3 & 13 …ELECTRONIC TRANSACTIONS (VICTORIA) AMENDMENT ACT
2011 (NO. 52 OF 2011) - SECT 10-amending some sections of ETA 2000 – New sections 13, 13A and 13B inserted
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Agreement can exist in the absence of identifiable offer and acceptance. Brambles
Holdings v Bathurst City Council (2001) 53 NSWLR 153 Even though no offer
and acceptance was identified, parties’ conduct inferred mutual agreement
Look at all the circumstances:
Can agreement be inferred?
Has mutual assent manifested?
Would a reasonable person conclude a bargain?
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Strategy for determining the existence of an agreement
• Step 1: try and identify a distinct offer and acceptance in accordance with
the conventional approach.
• Step 2: if step 1 fails, apply the test from Brambles Holdings v Bathurst
City Council: looking at all the circumstances to see whether an
agreement be inferred, whether mutual assent has manifested and
whether there is a concluded bargain from a reasonable person’s view
(objective test)
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Summary: offer
An offer must be capable of ripening into an agreement by acceptance – accordingly
must convey both a willingness to be bound and the “price” or consideration which the
offeror seeks in return for the offer made.
Summary: acceptance
Acceptance completes the formalities
Acceptance may constitute performance or be a promise to perform the acts required by the offer
An offeree cannot accept an offer of which they have no knowledge;
Acceptance must be communicated – EXCEPT:
• Where the offeror has dispensed with the requirement;
• In the case of a unilateral contract (Carlill)
• Where it’s the offeror’s fault that acceptance isn’t received
• Where the postal acceptance rule applies
Acceptance must be within the time period stipulated by the offer – or if no time, within a reasonable time;
Acceptance must be unconditional;
Acceptance must be given in the way required by the offer;
Unless the offeror consents – acceptance can’t be withdrawn;
Offers can only be accepted by the person to whom they are made;
Acceptance cannot be retrospective
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