LAW OF CONTRACT

LPAB Summer 2016

Alex Kuklik
 Lecture 1
House Keeping

Course description and objectives

Classes
Assessment
Text and materials

Course introduction

What is a contract? The definition of contract

Types of contracts
The role of contracts
Sources of contract law
How do contracts fit in with other areas of law
Freedom of contract:
Capacity Who can enter into a contract?
Illegality and restraints of trade
A.Kuklik
 Lecture 1
Formation of contract

The Fact of Agreement: Offer

R&G, Chapter 4 (paras 4.1-4.73)

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
[1953] 1 QB 401 (R&G(C)[4.3])
*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])
*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195
(R&G(C)[4.5])

A.Kuklik
 Course Description
The law relating to contracts is one of the pillars of the common law system. An
understanding of the basic elements of contract law is thus a critical pre-requisite for
the study of a number of later subjects, including Conveyancing, Commercial
Transactions and Industrial Law. The course aims to provide students with an
understanding of the basic principles of contract law which apply to nearly all contracts.
In fulfilling this aim, the course focuses primarily on a study of relevant case law and
statute law. The course covers the elements of formation of contracts, terms of a
contract, matters affecting consent to a contract, discharge of contracts, remedies, and
third party rights.

Special principles that apply to specific types of contracts are dealt with in later
courses.

The objectives of the course are:

(a) to provide students with an understanding of basic principles of contract law; and

(b) to develop in students an ability to analyse fact situations and correctly identify the
relevant principles of contract law that are applicable to the resolution of problems
raised by particular factual situations. A.Kuklik
 Lectures, Assessment, Texts
Lectures
See course outline p4
Weekend schools 1 and 2 see course outline pp5-6

Assessment
See course outline p1-2

Assignment: 20% - Due 5 January 2017

Exam: 80%

Reading, texts and materials

See course outline p3

Radan, Gooley & Vickovich, Principles of Australian Contract Law, 3rd

ed. LexisNexis, 2013 (R&G)
Radan, Gooley & Vickovich, Principles of Australian Contract Law,
Cases and Materials, 3rd ed. LexisNexis, 2014 (R&G(C)) A.Kuklik
 Lectures, Assessment, Texts
Tips on how to study this course

This course is heavily based upon common principles as opposed to

statutes. Therefore reading the cases and thinking about the cases is
essential. The principles that you will need to apply are contained in these
decisions. You will also need to be able to distinguish the facts in these
cases from those in the problems.

The assessment will largely be problem based:

Using: I.R.A.C:
http://sydney.edu.au/law/learning_teaching/legal_writing/problem_questions.sht
ml

Using: M.I.R.A.T: http://www.law.unsw.edu.au/current-students/surviving-

thriving/hitting-books/exam-preparation

A.Kuklik
 Introduction
Aims and Objectives

At the end of this lecture students should understand the following:

(a) the definition of contract;
(b) the sources of contract law;
(c) the various classifications of contracts;
(d) the basic principles relating to answering problem questions;
(e) the nature of an offer and the circumstances in which an offer is made

A.Kuklik
 Introduction
The definition of contract

The law of contract is concerned with four main topics:

(1) the making of the contract;

(2) the content, effect and enforceability of the terms of the contract

(3) the performance and discharge of the contract; and

(4) rights and remedies in the event of default in the performance of

the contract.

More simply, the law of contract is concerned with the formation and
enforcement of agreements which are recognised as contractual in
nature. A.Kuklik
 Introduction
The definition of contract

The word contract comes from the Latin contrahare which means to
draw together

Definitions of contract fall into two types:

Those that see it in terms of a promise or promises

Those that see it in terms of an agreement

Both of these types of definition have problems

A.Kuklik
 Introduction
Types of contract

This is sometimes called a unilateral contract where the offeror makes a

promise in exchange for some act (say, payment of money for a service).

This is contrasted with a bilateral contracts in which two parties exchange

promises to do things.

In a unilateral contract, the offeror is bound when the act is performed, but the
offeree cannot be forced to act. In a bilateral contract, both parties can be
forced to act i.e. to fulfil their promises.

A.Kuklik
 Introduction
Types of contract

Examples of bilateral contracts are present in everyday life. You enter this type of
agreement every time you make a purchase at a store, order a meal at a
restaurant, or receive treatment from a doctor In each circumstance, you've
promised a certain action to another person or party in response to that person or
party's action.

There are examples of unilateral contracts in everyday life as well: one of the most
common is a reward contract. For example if you have lost your dog. You place an
advertisement in the newspaper or online offering a $100 reward to the person
who returns your missing dog. By offering the reward, you're offering a unilateral
contract. You promise to pay should anyone fulfil the obligation of returning your
dog. You're the only person who has taken any action in this contract, as no one is
specifically responsible or obligated to finding your dog passed on this interaction.

Another common example of a unilateral contract is with insurance contracts. The

insurance company promises it will pay the insured person a specific amount of
money in case a certain event happens. If the event doesn't happen, the company
A.Kuklik
won't have to pay.
 Introduction
Sources of contract law

In Australia, contract law is largely governed by the common law, developed

domestically, and inherited from England, with some legislative additions:

Australian Consumer Law (as a Schedule to the Competition and

Consume Act 2010 (Cth))
Sale of Goods Act 1923 (NSW)
Contracts Review Act 1980 (NSW)
Civil Liability Act 2002, (NSW)

Is there a flavour to Australian contract law? See Carter [1-17]

A.Kuklik
 Introduction
The role of contracts

According to Friedman, contract functions as a legal instrument for the free

circulation of goods and labour, thereby signalling the movement away from
societies characterized by status and immobility.

First, it is widely accepted that contract law aims to facilitate exchange.

Indeed, as Lord Irvine has put it, the commercial law of contract serves as an
engine for trade. Exchange is not normally compulsory; but, for those who
wish to exchange, contract law attempts to put in place a secured framework
that facilitates dealing with a degree of confidence and trust. Contract law lays
down the transactional ground rules; contractors know where they stand;
whether parties deal with friends or strangers, at home or away, they trade in
the shadow of the sanctioning apparatus of the law. To this extent, contract
law channels parties towards performance.

A.Kuklik
 Introduction
The role of contracts

Secondly, it is recognized that contract law has a protective function. At one

level, this function is relatively uncontroversial, the idea being that contract
law must be compatible with the public interest in general. Thus, parties must
not be encouraged or permitted to draw on the sanctioning apparatus of
contract law where their agreement is illegal or, in some other sense, is
antithetical to the public interest. More controversial however, it is arguable
that the intent underlying much of the modern law is to protect parties who are
relatively vulnerable. Certainly it is widely agreed that one of the distinctive
functions of the modern law of contract is to put in place a protective regime
for routine consumer dealing.

A.Kuklik
 Introduction
The role of contracts

Secondly, it is recognized that contract law has a protective function. At one

level, this function is relatively uncontroversial, the idea being that contract
law must be compatible with the public interest in general. Thus, parties must
not be encouraged or permitted to draw on the sanctioning apparatus of
contract law where their agreement is illegal or, in some other sense, is
antithetical to the public interest. More controversial however, it is arguable
that the intent underlying much of the modern law is to protect parties who are
relatively vulnerable. Certainly it is widely agreed that one of the distinctive
functions of the modern law of contract is to put in place a protective regime
for routine consumer dealing.

Thirdly, where contracts give rise to disputes, it is accepted that one of the
objectives of contract law is to put in place machinery for the resolution of
such disputes.

A.Kuklik
 Introduction
The life of a contract

Negotiation?
Formation
Execution
Completion

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 Formation
Formation of contract

A.Kuklik
 Formation
Formation of contract

Formation of contract is classically concerned with a number of

elements or issues:

Offer
Acceptance
Certainty and completeness
Consideration
Intention to create legal relations
The requirement of writing
Capacity (not assessed)
Legality (not assessed)

A.Kuklik
 Formation
Freedom of contract

Capacity Who can enter into a contract?

Illegality and restraints of trade

A.Kuklik
 Formation
Capacity Who can enter into a contract? (not assessed)

For a contract to exist the parties must have contractual capacity. There are
certain persons and classes of persons that lack the capacity to enter into a
contract with the consequence (normally) that resulting contracts will not be
enforceable against them. Lack of capacity now often stems form a fear of
vulnerability to exploitation. This area has become more complex as a result
of statutory developments at a state level (calls for national law reform have
not yet met with success) which result in a variety of different rules.

Mental disorder
Intoxication
Bankrupts
The Crown
Minors
Companies

A.Kuklik
 Formation
Capacity Who can enter into a contract? (not assessed)

Mental disorder

A contract is voidable at the option of a party who, as a result of mental

disorder, is unable to understand the nature of the contract being made -
provided that the other party knew, or ought to have known, of that persons
disability. The party seeking to withdraw from the contract has the onus of
proving both these requirements:

(a) that they were suffering from such a disability and

(b) that the other party was - or ought to have been - aware of it.

A.Kuklik
 Formation
Capacity Who can enter into a contract? (not assessed)

Intoxication

A contract is voidable at the option of a party who, as a result of intoxication,

is unable to understand the nature of the contract being made - provided that
the other party knew, or ought to have known, of that persons disability. The
party seeking to withdraw from the contract has the onus of proving both
these requirements.

Bankrupts

A bankrupt person may make a contract but unprofitable contracts made prior
to bankruptcy may be disclaimed by the trustee. Legislation may also restrict
the nature of contracts a bankrupt person may enter into (for example, the
extent of credit they may obtain) and makes entering into some types of
contract without disclosure of bankruptcy an offence
A.Kuklik
 Formation
Capacity Who can enter into a contract? (not assessed)

The Crown

At common law proceedings could not be taken against the Crown, but legislation
has removed this immunity in most cases. Key limitations include:
the power of the Crown to contract may be restricted by statute
Crown is not permitted to fetter the future exercise of its discretionary powers
A parliamentary appropriation is needed to pay damages

Minors

Both the common law and statute operate to restrict the capacity of minors to
contract. The existing mix of common law and multiple different state
legislative rules in relation to the capacity of minors has rendered the
assessment of the contractual capacity of minors exceedingly complex.

A.Kuklik
 Formation
Capacity Who can enter into a contract?

Companies

At common law a company only had contractual capacity to the extent it was
given such capacity by its constitution parties to a contract with the
company were taken to have been aware of any restrictions contained in the
constitution.

Section 124 of the Corporations Act 2001 (Cth) gives a company the same
legal capacity as an individual including the power to make an agreement
and s 125 effectively provides that the performance of an act including entry
into an agreement by a company will not be invalid merely because it is
beyond the power of the companys constitution.

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 Formation
Illegality and public policy (not assessed)

Illegality is a highly complex area of contract law. It deals with both criminal
conduct, conduct prohibited by statute (even if not criminal) and conduct regarded
as contrary to public policy.

In some cases it will be simple to determine whether or not an illegal contract

exists and will be rendered void; for example, a contract whereby A agrees to pay
B $1m if B kills C will be clearly be considered illegal and void. In other cases it
will be more difficult. For example, will a transport contract be rendered illegal if
the car used in the transport speeds while on its journey? In some cases a
contract tainted by incidental illegality might be considered unenforceable rather
than void so that proprietary interests might pass notwithstanding the unlawful
conduct.

Statutory illegality - this encompasses contracts directly prohibited by statute (e.g.,

cartel contracts), contracts entered into for an illegal purpose (e.g., to kill),
contracts performed illegality (e.g., speeding whilst driving in the course of
performing a contract) and contracts otherwise made void by statute (e.g., certain
unfair terms in consumer contracts). Different rules and consequences attachA.Kuklik
to
each.
 Formation
Illegality and public policy (not assessed)

Common law illegality and contracts which are contrary to public policy - this
encompasses a broader range of conduct, including contracts prejudicial to
the administration of justice, contracts promoting corruption in public life,
contracts prejudicing the status of marriage, contracts promoting sexual
immorality and contracts in restraint of trade. It is not always easy to classify
these types of contract and what constitutes conduct that is contrary to 'public
policy' varies with the prevailing morality of the relevant jurisdiction.

Where conduct is classified as illegal or contrary to public policy it is generally

held to be unenforceable; there are, however, some exceptions to that rule
and, in some cases, it may be possible to sever the offending terms and
enforce the remainder of the contract.

A.Kuklik
 Offer
Formation of contract

The Fact of Agreement: Offer

R&G, Chapter 4 (paras 4.1-4.73)

Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])
Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) [1953] 1 QB 401 (R&G(C)[4.3])
*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])
*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195
(R&G(C)[4.5])

A.Kuklik
 Offer
Formation of contract

The Fact of Agreement: Offer and Acceptance

In cases where the existence of an agreement is in question, the traditional

resolving method for it is to apply the rules of offer and acceptance.

One looks at the negotiations between the parties and seeks to establish whether
one of them has made an offer to the other and whether the latter has
subsequently accepted the offer (we will discuss acceptance next week).

However, in many cases, whether an agreement exists will not be in dispute.

Thus, if A and B execute a detailed document prepared by their lawyers, the fact
of agreement will rarely be disputed by either of them. Nor will it be realistic to talk
of such an agreement as being the product of one of them making an offer, which
the other accepted.

A.Kuklik
 Offer
Formation of contract

The Fact of Agreement: Offer and Acceptance

Offer and acceptance analysis will work reasonably well in situations where there
have been negotiations between A and B which involve communications between
them that have reached a point where one of them claims an agreement has been
reached and the other disputes this. In such cases one simply goes through the
communications in chronological order in search of an offer, followed by an
acceptance of that offer. unless both an offer and acceptance are found to have
occurred, there is no agreement.

Principles of offer and acceptance help us determine:

When a contract was entered into. This can be important if there are time
limits on performance.
Where a contract was entered into. This can be important if there is a dispute
as to which jurisdiction governs a contract. A.Kuklik
 Offer
Formation of contract

The Fact of Agreement: Offer and Acceptance

Offer and acceptance analysis will work reasonably well in situations where there
have been negotiations between A and B which involve communications between
them that have reached a point where one of them claims an agreement has been
reached and the other disputes this. In such cases one simply goes through the
communications in chronological order in search of an offer, followed by an
acceptance of that offer. unless both an offer and acceptance are found to have
occurred, there is no agreement.

Principles of offer and acceptance help us determine:

When a contract was entered into. This can be important if there are time
limits on performance.
Where a contract was entered into. This can be important if there is a dispute
as to which jurisdiction governs a contract. A.Kuklik
 Offer
Formation of contract
The Fact of Agreement: Offer and Acceptance

Whether an agreement has been entered into is determined objectively (as

opposed to subjectively):

The general principles are not in doubt. Whether there was a binding contract
between the parties and if so, upon what terms depends upon what they have
agreed. It depends not upon their subjective state of mind, but upon a
consideration of what was communicated between them by words or conduct, and
whether that leads objectively to a conclusion that they intended to create legal
relations and had agreed upon all the terms which they regarded or the law
requires as essential for the formation of legally binding relations.
Even if certain terms of economic or other significance have not been finalised, an
objective appraisal of their words and conduct may lead to the conclusion that they
did not intend agreement of such terms t0 be a precondition to a concluded and
legally binding agreement.

RTS Flexible Systems Ltd v Molkerei Alois Mller Gmbh & Company KG (UK
A.Kuklik
Productions) [2010] 3 All ER 1
 Offer
Formation of contract
The Fact of Agreement: Offer

So what is an offer?

'An offer is a statement of the terms upon which the offeror is prepared to be
bound if acceptance is communicated while the offer remains alive.

Nielsen v Dysart Timbers Limited [2009] 3 NZLR 160 at 168.

In determining whether an offer has been made 'the correct approach is to ask
whether [the offeree] (having the knowledge of the relevant circumstances which
[the offeree] had), acting reasonably would understand that [the offeror] was
making a proposal to which he intended to be bound in the event of an unequivocal
acceptance

Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd (20l0) EWCA Civ
1331 at [25] A.Kuklik
 Offer
Formation of contract
The Fact of Agreement: Offer

For a valid offer to exist, it must be communicated to the offeree, or his or her
agent, by the offeror or his or her agent. If the offeree learns of the offer from an
unauthorised person, there is no offer for that offeree to accept: Banks v Williams
(1912) 12 SR (NSW) 3S2 at 390-l. Once the offer is communicated to the offeree,
he or she has the power to turn it in to an agreement by accepting it.

What is central to an offer is the will or intent of the offeror to be bound in contract
by the terms of the offer. A statement that lacks such will or intent is not an offer.

In some situations such a statement will simply be:

the supply of information
an invitation to treat

A.Kuklik
 Offer
Formation of contract
The Fact of Agreement: Offer v Invitation to treat

Carter defines an invitation to treat as 'a request to others to make offers or to

engage in negotiations with a sale in mind'.

[In cases] in which you offer to negotiate, or you issue advertisements that you
have got a stock of books to sell, or houses to let ... there is no offer to be bound
by any contract. Such advertisements are offers to negotiate - offers to receive
offers - offers to chaffer, as, I think, some learned judge in one of the cases has
said.

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

So if it is an invitation to treat, it is not an offer capable of acceptance and therefore

there is no contract.

A.Kuklik
 Offer
Formation of contract
The Fact of Agreement: Offer v Invitation to treat

So when is it an invitation to treat?

In many cases the issue that will resolve a dispute between persons involved in
litigation before the courts is whether a statement made by one to the other is an
offer or an invitation to treat.

See Gibson v Manchester City Council [979] 1 All ER 972 contrasted with Storer v
Manchester City Council [l974] 3 All ER 824 both cases where council, resolved to
allow tenants of council housing to buy their properties. The council sent a letter to
in which it stated that it may be prepared to sell to the premises that the tenant
was leasing from the council. The letter stipulated the price and terms and
conditions upon which a sale would take place. The letter then invited the tenant
to make a formal application to buy by completing the enclosed application form.

Did this constitute and offer or an invitation to treat?

A.Kuklik
 Offer
Formation of contract
The Fact of Agreement: Offer v Invitation to treat

ln Harvey v Facey [1893] AC 552, Harvey telegraphed to Facey saying: Will you
sell us Bumper Hall Pen?

Facey replied: Lowest price for Bumper Hall Pen, 900.

Harvey replied that he agreed to buy the property for 900 and asked that the title
deeds be forwarded to him. Facey refused, claiming there was no contract of sale.
The question before the court was whether Faceys reply was an offer or simply
the supply of information.

The House of Lords ruled in favour of Facey saying the reply was merely the
supply of information: the mere statement of the lowest price at which the vendor
would sell contains no implied contract to sell at the lowest price.

A.Kuklik
Harvey v Facey is indicative of the view that where property, such as land, is of
considerable value, the mere statement of price at which a person is prepared to
 Offer
Formation of contract
The Fact of Agreement: Offer v Invitation to treat

Harvey v Facey is indicative of the view that where property, such as land, is of
considerable value, the mere statement of price at which a person is prepared to
sell, is usually not an offer. However, in Pattison v Mann (1975) 13 SASR 34 the
Court conceded that such a statement could be an offer in some cases, but went
on to say that very often the absence of reference to matters which one would
normally expect to be the subject of negotiations is a strong indication that no
concluded agreement has been reached by a purported acceptance of such a
statement.

A.Kuklik
 Offer
Formation of contract
The Fact of Agreement: Offer

What about unusual situations that are not strictly letters which say I offerV. ?
How can you tell if they are offers or merely invitations to treat?

Promotional material/advertisements: Carlill v Carbolic Smoke Ball Co [1893] 1

QB 256 (R&G(C)[4.2])

Self service at shops: Pharmaceutical Society of Great Britain v Boots Cash

Chemists (Southern) [1953] 1 QB 401 (R&G(C)[4.3])

Auctions: *Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

Tenders: *Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195
(R&G(C)[4.5].

A.Kuklik
Standing offers
 Offer
Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

In June 1946 the Commonwealth Government announced a subsidy scheme to

maintain the price structure of wool in the wake of the Second World War. It said
that it would pay a subsidy to manufacturers of wool who purchased and used that
wool for local manufacture after 30 June 1946. The Plaintiff purchased and used
wool for local manufacture between 1946-48 and received some payments. The
Government subsequently stopped its subsidy scheme and the Plaintiff sued the
Government for subsidies it claimed it was due.

The plaintiff argued that a contract had been formed by the offer of a subsidy by
the Government that offer being accepted by the doing of an act by the plaintiff,
that is, buying the wool.

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 Offer
Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

Held:

There was no contract. The statement made by the Commonwealth was not
offered as consideration for the plaintiff buying the wool. The Court stated that in
cases such as this:

V it is necessary, V that it should be made to appear that the statement or

announcement which is relied on as a promise [here the subsidy statement] was
really offered as consideration for the doing of the act, and that the act [buying and
using the wool as directed] was really done in consideration of a potential promise
inherent in the statement or announcement.

One has to look at the context in which the documents arose - they cannot be seen
as a standing offer - capable of acceptance by the act of purchase. The subsidy
was not a request, invitation or an inducement to purchase wool. There was nothing
to suggest that the subsidy and purchase of wool were related, no quid pro quo.
A.Kuklik
 Offer
Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

There must be a relationship of quid pro quo between the statement and the
Act. Here there was no promise offered in consideration of doing an act.
The doing of the act must be based upon the promise - not merely coinciding
with it. E.g., if A says to B "I will pay you $100 on your arrival in Sydney" B
could not necessarily enforce the promise on arrival. It may be that B was
planning to go to Sydney anyway and did not act in response to the offer.

Buying the wool was merely a condition precedent to entitlement to the

subsidy. It was not intended as the consideration for a promise to pay the
subsidy. In this respect the Court also noted that there was no offer or request
or invitation to purchase wool or anything else suggesting that payment of
subsidy and the purchase of wool were regarded as related in such a way that
the one was a consideration for the other.

A.Kuklik
 Offer
Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

The Court also concluded that there was no intention on the part of the
government to create legal relations; it was instead a government scheme to
promote industry. In this respect the Court noted that It is of the essence of
contract V that there is a voluntary assumption of a legally enforceable duty.
V it is necessary that what is alleged to be an offer should have been
intended to give rise, on the doing of the act, to an obligation. V

A.Kuklik
 Offer
Australian Woollen Mills Pty Ltd v Cth (1954) 92 CLR 424 (R&G(C)[6.2])

The Court criticised the use of the word unilateral in respect of this type of
contracting, but commented that the alleged contract here was of
the promise for an act type of contract.

Appeal to the Privy Council was dismissed.

[NB. To what extent was the historical situation (a Government trying to cope
with economic difficulties in the aftermath of war) relevant to the decision in
this case?]

A.Kuklik
 Offer
Promotional materials

The general rule is that circulars catalogues and advertisements setting out
price lists or promoting the same of products are invitations to treat.

However, the general rule will not apply if it is clear from the advertisement of
circular that the seller is limiting her liability to the amount of stock on hand.

In Spencer v Harding (1870) LR 5 CP 561 a circular stating We are instructed

to offer to trade for saleV goods, was held to be an invitation to treat.

In Leftowitz v Minneapolis Surplus Store 86 NW 2d 689 (1957), the store

placed a newspaper which read: l Black Lapin Stole . . . Beautiful, worth
$139.50 . . . $1.00 First come first served. Lefkowitz was the first to present,
but the store refused to sell it to him on the basis of a house rule that the
advertisement could only be taken up by women. Lefkowitz sued the store for
damages for breach contract.
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 Offer
Promotional materials

[W]here the offer is clear definite, and explicit, and leaves nothing open for
negotiation, it constitutes an offer, acceptance of which will complete the
contract. ... [A] newspaper advertisement relating to the purchase and sale of
[a product] may constitute an offer, acceptance of which will consummate a
contract and create an obligation in the offeror to perform according to the
terms of the published offer. Whether in any individual instance a newspaper
advertisement is an offer rather than an invitation to make an offer depends
on the legal intention of the parties and the surrounding circumstances. . . .
We are of the view on the facts before us that the offer by the [Great
Minneapolis Surplus Store] of the sale of the Lapin fur was clear, definite, and
explicit, and left nothing open negotiation.

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 Offer
Promotional materials

The rationale is often argued that if these ads constituted an offer then the
vendors obligation to provide stock at the advertised price could be limitless.

This gives rise to the argument that when the advertisement limits the stock to
be sold indicates an offer because it is limited in its nature.

A.Kuklik
 Offer
Promotional materials

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

The Carbolic Smoke Ball Co. made a product called the "smoke ball". It
claimed to be a cure for influenza and a number of other diseases, in the
context of the 18891890 flu pandemic. The smoke ball was a rubber ball with
a tube attached. It was filled with carbolic acid (or phenol). The tube would be
inserted into a user's nose and squeezed at the bottom to release the
vapours. The nose would run, ostensibly flushing out viral infections.

The Company published advertisements in the Pall Mall Gazette and other
newspapers on November 13, 1891, claiming that it would pay 100 to
anyone who got sick with influenza after using its product according to the
instructions provided with it.

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 Offer
Promotional materials

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 Offer
Promotional materials

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

100[1] 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 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as
preventives against this disease, and in no ascertained case was the disease contracted by those
using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy in
the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address:
Carbolic Smoke Ball Company, 27, Princes Street, Hanover Square, London. A.Kuklik
 Offer
Promotional materials

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

Mrs Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and
used it three times daily for nearly two months until she contracted the flu on 17
January 1892.

She claimed 100 from the Carbolic Smoke Ball Company. They ignored two
letters from her husband, a solicitor. On a third request for her reward, they replied
with an anonymous letter that if it is used properly the company had complete
confidence in the smoke ball's efficacy, but "to protect themselves against all
fraudulent claims", they would need her to come to their office to use the ball each
day and be checked by the secretary.

Mrs Carlill sued in contract. She argued that the advertisement and her reliance on
it was a contract between the company and her, so they ought to pay. The
company argued it was not a serious contract. The issues that arose included:
whether the advertisement was an offer, whether it had ben accepted and whether
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there was consideration.
 Offer
Promotional materials

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

Held: There was an agreement and the defendant had to pay the reward

Bowen LJ:

The necessary will or intention to make the advertisement an offer rather than a
mere puff was to be found in the fact that the company had set up a special bank
account to meet possible claims as a sign of its sincerity in the matter.

It was only necessary for the person to the offer was made to follow the indicated
method of acceptance if the offeror indicates or implies that it will be sufficient
to act on the proposal without communicating acceptance, performance of the
condition is sufficient acceptance.

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But what if there was no bank account?
 Offer
Promotional materials

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

1. The statement referring to the deposit of 1,000 demonstrated intent and

therefore it was not a mere sales puff.

2. It is quite possible to make an offer to the world.

3. In unilateral contracts there is no requirement that the offeree communicates an

intention to accept, since acceptance is through full performance.

4. Whilst there may be some ambiguity in the wording this was capable of being
resolved by applying a reasonable time limit or confining it to only those who
caught flu whilst still using the balls.

5. The defendants would have value in people using the balls even if they had not
been purchased by them directly. A.Kuklik
 Offer
Promotional materials

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

Carter argues that the result may not have differed [3-08] because the public may
have still understood it to be an offer (and the Court may have held that the public
would so understand).

So how would this be distinguished from ordinary situations.

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 Offer
Displays of goods/self-service stores

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 Offer
Displays of goods/self-service stores

Generally, a display of priced goods in a shop, or in a shop window is an invitation

to treat. The customer makes an offer which retailer either accepts or rejects. A
significant authority on this point is Pharmaceutical society of Great Britain v Boots
Cash Chemists (Southern) Ltd [1953] 1 QB 401.

Nevertheless, the principle in this case has not prevented a display from
occasionally being held to constitute an offer. In Chapleton v Barry Urban District
Council [1940] 1 KB 532, a display of deck chairs with a sign indicating the fee for
their hire was held to constitute an offer.

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 Offer
Displays of goods/self-service stores

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1

QB 401 (R&G(C)[4.3])

Section 18 of the Pharmacy and Poisons Act 1933 (UK) stipulated that certain
drugs could only be sold to members of the public if the sale was effected by or
under the supervision of, a registered pharmacist. Boots Cash Chemists operated
a self-service pharmacy. When one of its customers selected to purchase drugs
covered by the legislation, they proceeded to a checkout desk where a registered
pharmacist handled the transaction. The registered pharmacist was also
authorised by the pharmacy to prevent any person from removing any drugs from
the premises. The Pharmaceutical Society brought an action against Boots Cash
Chemists claiming that this method of selling the drugs breached s 18.

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 Offer
Displays of goods/self-service stores

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1

QB 401 (R&G(C)[4.3])

In determining whether the legislation was breached, the Court of Appeal focused
on whether the display of drugs was an offer or an invitation to treat. The Court
ruled that the display was an invitation to treat, with the consequence that the
customer made an offer at the time he or she presented at the checkout counter
as willing to buy the relevant drugs. A registered pharmacist then accepted the
offer.

In such circumstances, the contract was entered into under the supervision of a
registered pharmacist and thus there was compliance with the legislation.

Therefore the principle adopted is that no offer is made by the display of the goods

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 Offer
Displays of goods/self-service stores

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1

QB 401 (R&G(C)[4.3])

Somervell LJ noted that in relation to:

"an ordinary shop, although goods are displayed and it is intended that customers
should go and choose what they want, the contract is not completed until, the
customer having indicated the articles which he needs, the shopkeeper, or
someone on his behalf, accepts that offer. Then the contract is completed."

Were it otherwise, once an article has been placed in the receptacle the customer
himself is bound and he would have no right without paying for the first article to
substitute an article which he saw later of the same kind and which he perhaps
preferred.

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 Offer
Displays of goods/self-service stores

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] 1

QB 401 (R&G(C)[4.3])

This reasoning has been criticised. Because if the shopkeeper was the offeror
(making the offer by displaying the goods), wouldnt acceptance take place when
the goods are presented for purchase at the counter, rather than when they are
put in the basket?

Is this rule realistic in big stores where it is not the owner deciding whether to
accept the offer to purchase? Does a junior sales clerk have the power to accept
and enter in to the contract?

Would it make a difference if there was not legislation involved in this case?

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 Offer
Auctions

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 Offer
Auctions

It is well established that when an auctioneer put up an item for sale, she is not
making an offer to sell to the highest bidder, but inviting offers from the bidder.

By making a bid, the bidders are making an offer, which is accepted by the
auctioneer when the hammer falls.
Payne v Cave (1789) 100 ER 502

This is reinforced by the Sale of Goods Act 1923 (NSW), s 60.

This means that the auctioneer does not have to accept the highest bid or any
bid, unless the auctioneer has stated that she will do so.
AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454

It also means that a bid can be retracted before I the hammer falls.

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 Offer
Auctions

BUT, in the case of an auction without a reserve, there is conflicting authority as

to what the position is:

In AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 it was held that the
principle in Cave v Pane applies irrespective of whether the auction is with or
without reserve

However, the UK Court of Appeal has held otherwise in Barry v Davies [2001]
1 All ER 944 (R&G(C)[4.4]), saying that the holding of the auction was the
offer and that it was accepted by the bid.

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 Offer
Auctions

*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

Davies, trading as an auctioneer, conducted an auction of a couple of machines,

each worth over 14,000. The auction was conducted without a reserve price.

After unsuccessfully seeking bids (3,000 to 5,000), the auctioneer, then asked
for bids for the machines. The only bid was made by Barry who offered 200 for
each machine. The auctioneer refused to accept the bids.

The machines were subsequently sold for 700 each. Barry successfully sued the
auctioneer for damages for breach of contract on the basis that, as the highest
bidder, he was entitled to purchase the two machines for 400. The auctioneer
appealed.

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 Offer
Auctions

*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

Held

The court upheld the trial judges decision that the auctioneer was liable.

They approved the dicta of the earlier decision of Warlow v Harrison where it was
held that although there is no contract between the vendor and the buyer, the
auctioneer becomes liable to the highest bidder for damages for breach of
contract.

We cannot distinguish the case of an auctioneer putting up property for sale

upon such a condition from the case of the loser of property offering a
reward, or that of a railway company publishing a time table stating the times
when, and the places to which, the trains run. It has been decided that the
person giving the information advertised for, or a passenger taking a ticket,
may sue as upon a contract with himV A.Kuklik
 Offer
Auctions

*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

VUpon the same principle, it seems to us that the highest bona fide bidder at an
auction may sue the auctioneer as upon a contract that the sale shall be without
reserve. We think the auctioneer who puts the property up for sale upon such a
condition pledges himself that the sale shall be without reserve; or, in other words,
contracts that it shall be so; and that this contract is made with the highest bona fide
bidder; and, in case of a breach of it, that he has a right of action against the
auctioneer.

Here it was held that the auctioneer was liable for breach of contract.

But what is the consideration for the auctioneers promise to sell the property?
What is the bidder giving up in return for the promise? The Court said that it was
the detriment suffered by the bidder because his bid can be accepted unless
withdrawn.
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 Offer
Auctions

*Barry v Davies [2001] 1 All ER 944 (R&G(C)[4.4])

Also, if the bid was revocable, what does that say about an agreement with the
auctioneer. Is that really consideration?

Also, if this is accepted as Australian law, what does that say about an auction
with a reserve, once the bids have reached the reserve? Does the auctioneer
have to accept them?

This case has been criticised, but not overruled, and the reasoning from Warlow v
Harrison upon which this case was based has been applied in Victoria in Ulbrick v
Laidlaw [1924] VLR 274.

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 Offer
Tenders

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 Offer
Tenders

Tenders are a little similar to auctions, but a key difference is that in most
tenders, each bidder makes only one bid, and with knowledge of the other
tenderers.

Therefore in a tender, it is the tenderer (the party who submits a tender) not the
person calling for tenders (the invitor). Once the tender is made, the invitor can
choose to accept or reject the tender.

Meudell v Harvella Investments v Mayor of Bendigo (1900) 26 VLR 158

The invitor can accept or reject any tender, but if she has said that she will accept
the best tender, she must do so and a contract arises with the best tenderer.

An exception to this is process contracts. A process contract arises in certain

circumstances where an invitation to tender creates and offer and the tender is
the acceptance
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 Offer
Tenders

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

The council, which owned an airport, called for tenders to operate pleasure flights
from the airport. Blackpool & Fylde Aero Club (the club) was the existing operator
whose contract was coming to an end. It was also one of the closed group of
seven people invited to tender for a new contract. The invitation to tender was
detailed and specific in the procedure for, and form of, the submission of tenders.
The reason for this was that the council wanted to ensure that the committee
considering the tenders was not in a position to know which tender had been
submitted by which tenderer.

One of the clauses in the call for tenders stated that [n]o tender which is received
after the last date and time specified shall be admitted for consideration. The club
submitted its tender on time and in accordance with the required procedure and
form. However, due to an administrative error by the council, the tender was not
considered. This meant that the club lost any chance of being the successful
tenderer.
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 Offer
Tenders

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

The club sued the council for damages for breach of contract.

Did the call for the tenders constitute an offer to consider them all?

Generally an invitation is no more than an offer to receive tenders. But in certain

circumstances it could give rise to a contractual obligation, either from:
The express words used in the tender
The circumstances surrounding the sending of the invitation
Both

Here it was both becauseV

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 Offer
Tenders

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

Here the pertinent factors indicating a contract were held to be:

The Council approached a small, select group of tenderers.

They were all connected with the airport
The plaintiff had held the concession for eight years and had won three
previous tenders
The Council was obliged to comply with its standing orders and owed a duty
to ratepayers to act prudently in managing its financial affairs.
There was a clear intention on the part of both parties that all timely tenders
would be considered.
Special envelopes were supplied to each tenderer to preserve anonymity.

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 Offer
Tenders

*Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195 (R&G(C)[4.5])

How would the ordinary person reading the tender document construe it?

The Council might or might not any particular tenderVbut if it did consider
any tender that was submitted before the deadline, it would consider all such
tenders.

Although contracts should not be lightly implied Bingham LJ was satisfied here
that both parties intended to create contractual relations.

Stocker LJ said that this one of the fairly rare exception to the rule about tenders.

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Next weekV..

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 Next weekV..
Acceptance

Acceptance generally
Text: Radan & Gooley, Chapter 4 (paras 4.74-4.121)
R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])
Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex
D 216 (R&G(C) [4.10])
Brinkibon v Stahag Stahl [1983] 2 AC 34 (R&G(C) [4.11])
Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

Alternatives to Offer & Acceptance

Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965
(R&G(C) [4.13])

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 Next weekV..
Acceptance

Termination of Offers
Stevenson, Jacques and Co v McLean (1880) 5 QBD 346 (R&G(C) [4.6])
Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])
Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228 (R&G(C)
[4.8])

Certainty and Completeness

Text: Radan & Gooley, Chapter 5
Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C) [5.2])
Whitlock v Brew (1968) 118 CLR 445 (R&G(C) [5.3])
United Group Rail Services Limited v Rail Corporation New South Wales
[2009] NSWCA 177 (R&G(C) [5.4])
Masters v Cameron (1954) 91 CLR 353 (R&G(C) [5.5])
Meehan v Jones (1982) 149 CLR 571

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